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CEO Duality In Listed Corporations: Is There An End To The Dichotomous Debate?

by

Abigail Westby

A thesis submitted in conformity with the requirementsfor the degree of Master of Laws

Faculty of LawUniversity of Toronto

© Copyright by Abigail Westby 2014

CEO Duality In Listed Corporations: Is There An End To The Dichotomous Debate?

Abigail Westby

Master of Laws

Faculty of LawUniversity of Toronto

2014

Abstract

CEO duality has been the subject of debate for over twenty years and shows no signs of abating.1

With conflicting theoretical and empirical evidence underpinning the debate the practice has

fluctuated, investor perception of board leadership structure has altered, international regulation

has reacted, scholarly conceptualizations of duality have become overly complex, and the need to

understand duality and conclude the debate has increased.2 This thesis explores duality in listed

corporations and aims to form an appropriate solution to end the dichotomy. My solution requires

one to confront misunderstandings which have led to a traditional insistence towards structural

reform and prolonged the contentious debate, and recognize an underlying contention which

needs to be resolved to bring finality to the debate. I argue finality is possible if a process

oriented approach is adopted and corporations recognize the need to be technically equipped to

deal with leadership structures in the modern corporate arena.

ii

1 Krause, Semedeni, CEO-Coard Chair Separation: If It Aint Broke, Dont fix it (Conference Board Director Notes 2013)

2 Krause, Semandeni, Cannella, “CEO Duality: A Review And Research Agenda” (2013) Journal of Management

Acknowledgments

This thesis is for my Mother and her constant love, support and encouragement; all that I am, and

all that I hope to be I owe to her. I also extend great thanks and appreciation to my supervisor

Professor Jeffrey Macintosh for his expert teachings and his patience.

iii

Table of Contents

Chapter 1: Introduction

1:1 Corporate Governance

1:2 Listed Corporations

1:3 Corporate Scandals

1:4 My Thesis

Chapter 2: Duality In The International Arena

2:1 The Regulation And Prevalence Of Duality

2:1:1 Canada

2:1:2 England

2:1:3 The U.S.

2:2 International Practice

Chapter 3: The Dichotomous Debate

3:1 The Reality Of Duality

3:1:1 Centralization Of Authority

3:1:2 Oversight

3:1:3 Independence

3:1:4 Roles And Responsibilities

3:1:5 Personalities, Behaviors And Relationships

iv

3:1:6 Information Asymmetry

3:2 Theoretical Approaches

3:2:1 The Agency Theory

3:2:2 The Stewardship Theory

3:2:3 Alternative Theories

3:2:3:1 The Contingency Theory

3:2:4 The Theoretical Result

3:3 Empirical Evidence And Research

3:4 How To React To Twenty Years Of Conflict?

Chapter 4: An End To The Dichotomous Debate

4:1 Can The Debate Of Duality Be Concluded?

4:2 How Can Finality Be Brought To The Debate?

4:3 Implementing The Approach

Chapter 5: Conclusions

Bibliography

v

1 IntroductionCorporate governance, traditionally defined as the system by which corporations are directed and

controlled,3 has become an increasingly topical and important matter in recent years-fueled by

corporate scandals and disasters such as Enron, HIH, Worldcom and more recently the global

financial crisis which have made fault lines in governance practice more apparent than ever.4

With the board of directors baring the responsibility of ensuring effective corporate governance

practices, it is unsurprising that it is the leaders and the most powerful officers of the board-the

Chairman and the Chief Executive Officer (CEO)-5 facing the blame for corporate scandals, and

vilification for corporate disasters.6 With public confidence in need of being restored and

maintained, and with investors more prepared than ever to pay a premium for good governance,7

I believe it is necessary to bring finality to the dichotomous debate of CEO duality, concluding

one of the most contentious and longstanding corporate governance debates.8

1.1 Corporate Governance

The board of directors collectively hold the position of highest governing authority in the

corporation, responsible for the long term success of the company.9 Shareholders in publicly held

corporations appoint the board of directors, overseen by the Chairman, who are legally obliged to

represent their interests by monitoring and supervising managers to ensure their behavior is

aligned with the interests of the shareholders, as well as providing opinion and direction for key

1

3 The Committee On Financial Aspects of Corporate Governance, “Financial Aspects Of Corporate Governance” (1992) (The Cadbury Report)

4 Deakin, “Corporate Governance And The Financial Crisis In The Long Run” (2010) Centre for Business Research, University of Cambridge Working Paper No. 417

5 Vo, “To Be Or Not To Be CEO And Board Chair” (2010) Paper 184, 76 Brooklyn Law Review 65

6 O’Hara “Asleep at the Switch? Corporate Boards Culpability in the 2008 Financial Crisis” (2009) 2 The Investment Professional 3

7 Siladi, The Role Of Non-Executive Directors In Corporate Governance: An Evaluation (Faculty of Business and Enterprise, Swinburne University of Technology 2006)


9 Donaldson, Davis, “The Stewardship Theory Or The Agency Theory: CEO Governance And Shareholder Returns” (1991) 16,1 The Australian Journal Of Management 49

strategic business decisions and ensuring the effective implementation of strategy.10 It is the

managers, led by the CEO, who are evaluated by the board, ensuring they effectively fulfill their

responsibility of implementing such strategy and heading operational activity. With the Chairman

and CEO therefore being the most powerful officers in charge of guiding the corporation to

success, it is instantly clear to see why the practice of duality-whereby the Chairman and CEO

positions are held by the same person and the individual responsibilities of the same are

seemingly merged-is the most widely discussed and contentious corporate phenomena.11

The extremely controversial debate of duality has endured for over twenty years and yet remains

an unanswered corporate governance issue. With effective corporate governance requiring

“proper incentives for the board and management to pursue objectives that are in the interest of

the company and its shareholders, and effective monitoring of the same”,12 it is clear that the

practice of duality is highly contentious, when considering duality apparently leads to a

concentration of power in one potentially self-serving person, reducing the monitoring function

of the board, lessening the ability to detect managerial incompetence and corruption and prevent

corporate disasters,13 therefore frustrating the underlying basis of the corporate entity. However,

with duality also being said to enhance effective corporate governance by enabling unity of

command, and allowing shareholders to be served more efficiently through a clear,

knowledgeable and effective leader, the practice of duality has been referred to as a “double

edged-sword”,14 because of the inherent trade off between independent oversight and unity of

command it produces-making it understandable as to why the practice is highly contentious.

In my thesis I propose to end the debate of duality as opposed to further adding to it. I believe it

is necessary to bring finality to the debate once and for all because of the importance of

corporate governance. While some argue that corporate governance it merely a box ticking

2

10 Vlahu, “Corporate Governance of Banks” (2013) DNB Working Paper No. 386




14 Krause, Semandeni, Cannella, “CEO Duality: A Review And Research Agenda” (2013) Journal of Management (2013)

exercise,15 I insist that corporate governance practices are integral to achieving corporate health

and success. This is especially so with the governance issue of duality. This is because it

concerns corporate leadership and leadership faces responsibility for determining the direction of

the corporation and accountability for the corporations performance. Effective corporate

governance practices enhance the corporations image in the public eye, with self-policing

corporations considered responsible and worthy of investor capital, whereas “corporations

without a system of effective corporate governance practices and structures are likened to a body

without a soul or conscience”.16 Effective corporate governance also plays an inherently major

role in national and international economic stability, with corporations and their governance

practices having the ability to influence the provision of appropriate environments for economic

growth and societal welfare.17 Thus it is widely accepted that corporate governance practices and

in particular the practice of adopting an effective corporate leadership structure is of inherent

importance internally to the corporation and its investors, and externally to society. Policy

makers have become increasingly aware of the contribution good corporate governance makes to

financial market stability, investment and economic growth, corporations better understand how

good corporate governance contributes to their competitiveness, and investors have taken on an

active monitoring role in order to ensure good corporate governance practices. Yet in order to

gain the benefits associated with effective corporate governance such practices need to be

determined and resolved. With the leadership debate remaining contentious and inconclusive,

this leaves corporations open to attack for ineffective practice, and corporations, investors,

international markets and economic welfare18 vulnerable to the effects of such.

1.2 Listed Corporations

3

15 Applied Corporate Governance, “The Importance Of Corporate Governance” Online: <http://www.applied-corporate-governance.com/importance-of-corporate-governance.html>


17 OECD, “OECD Principles Of Corporate Governance” (2004)

18 Waseem, “The Effect Of Corporate Performance of Jordanian Companies” (2011) 11 International Journal Of Humanities And Social Science 4

http://www.applied-corporate-governance.com/importance-of-corporate-governance.html




Corporate governance, and in particular board leadership structure, is particularly important in

stock exchange listed corporations. This is because listed corporations are mandatorily of sizable

scale in terms of equity and effect and have the greatest ability of significantly impacting and

influencing national and international markets, society and the economy.

Stock exchanges, alongside capital market regulators and investor organizations, have become

key players in developing corporate governance codes and recommendations, and determining

and influencing effective governance practice. Since the promulgation of the OECD Principles of

Corporate Governance19 stock exchanges have enlarged their regulatory role to embrace a wider

palette of corporate governance concerns, including the matter of duality-issuing rules on the

same, requiring ongoing disclosure and maintenance requirements, monitoring aspects of

existing governance frameworks, with compliance largely successful due to underlying threats,

most significantly, the treat of de-listing. Corporations desire listing status and choose to comply

with such requirements, allowing stock exchanges to regulate their leadership practices, due to

stock exchanges being the most important source for corporations to raise funds and providing

liquidity of securities. Meeting all listing requirements and ones presence on a stock exchange

also signals a certain amount of stability and credibility of a corporation, and the more stringent

the listing requirements, the greater the indicator of the quality of a corporation-just some of the

considerations investors make when considering investment.

While some assume that the magnitude of listed corporations make them more inertial to change,

with leadership structure having little, if any impact upon their practice and performance-I

oppose and argue that it is infact the magnitude of listed corporations which enhances the gravity

and pertinence of the debate of duality, making the debate all the more crucial to conclude, due

to this greater impact. This is why I shall be focussing on listed corporations, because if there is a

corporate governance issue whereby its impact upon corporate performance remains unclear,

then it is extremely important to resolve the debate as opposed to allowing it to continue

dichotomously, through inertia, for another twenty years. Leaving the debate open for contention

only means listed corporations are setting themselves up for potential mismanagement, failure,

4


scandals and corporate disasters20 due being unaware of the true effect of their corporate

governance leadership practice, merely due to convenience.21 If the debate was concluded, it

would have the ability to shed light on corporate governance practices and enable the

determination of an optimal practice which listed corporations could adopt in order to enhance

their performance; enabling the maximization of shareholder returns, an increase in investor

interest, contribute to societal confidence, assist in the development of a robust economy and

uphold stock market vigor.

1.3 Corporate Scandals

The need to conclude the debate is only intensified when considering it is listed corporations

around the world who are continually hitting the headlines for diverse scandals caused by the ill

effects of ineffective corporate leadership practice, with the Chair and CEO as leaders of the

corporation typically facing the vilification.22 Thus in order to prevent corporate scandals,

instances of mismanagement and wrongdoing in an attempt to avoid malpractice and corporate

collapse, and in order to uphold the intention underlying corporate governance practices of

increasing corporate accountability, effective corporate governance practices need to be

decisively determined and executed effectively. This is increasingly being argued as a necessity

after the financial crisis, in the wake of the meltdown of major stock markets around the globe

and the damaged economies around the world. This is because of such being an extraordinary

example of the effect of ineffective corporate governance mechanisms-with duality itself having

not only being a significant contributor to the crisis,23 but also having attributed the majority of

the blame in the many failings due to a substantial majority of the corporations at the heart of the

economic meltdown having practiced duality before the crisis erupted.24

5

20 Cheng, “Board Composition, Regulatory Regime And Voluntary Disclosure” (2004)

21 Waseem, “The Effect Of Corporate Performance of Jordanian Companies” (2011) 11 International Journal Of Humanities And Social Science 4

22 Lin, “What Matters Between CEO Duality And Firm Performance? Moderating Roles Of CEO Informal Power And Board Involvements” (2011)

23 The Steering Committee, “Toward Effective Governance Of Financial Institutions” (2012) Group Of Thirty


With corporate boards, the individuals that comprise of them, and most notably the leaders of the

corporation continuing to face “tremendous responsibility for our current economic

predicament”,25 and following the continuing trend of accusation which initially began in the

early 2000‘s towards duality for failures of major commercial giants,26 duality is itself now

attributed with providing lack of board oversight and ineffective corporate performance.

However, for every example of failure and catastrophe blamed on dual leadership such as the

‘London whale’ trading scandal at JPMorgan Chase, there is a counter example of a government

bailout for a corporation where the leadership roles were split, and despite the acknowledgement

that high-profile corporate scandals such as Enron and WorldCom which centered around CEO

corruption, did not themselves practice a dual leadership structure,27 after the financial crisis it

has only become more common for listed corporations to come under fire from activist

shareholders, institutional investors, proxy advisory firms, and regulators who aim to achieve

independent leadership on the boards. This has led to the issue of separating the Chair and CEO

roles to be the most contested governance debate to continue for over twenty years, with there

being no sign of it abating. Even academic papers and practitioner-oriented literature routinely

call for separation of the roles, as do a variety of best practice codes and guidelines, due to the

mere assumption that separating the positions of Chair and CEO will facilitate board

independence, which will in turn lead to better detection of managerial corruption or

incompetence through enhanced oversight of the CEO through increased information flow to the

board of directors.28 Politicians and the public at large have been quick to assume the same,

causing a trend of vilification towards former CEO’s of failed institutions, such as Fuld of

Lehman Brothers, and deposed CEOs of corporations on government life support such as

Goodwin, former CEO of the Royal Bank of Scotland. However, corporate leaders and some

associations continue to respond to the debate by resisting a “one size fits all” approach to

6

25 Kim, Buchanan, “CEO Duality, Leadership And Risk Taking Propensity” (2008) 24 The Journal Of Applied Business Research 1

26 Lin, “What Matters Between CEO Duality And Firm Performance? Moderating Roles Of CEO Informal Power And Board Involvements” (2011)


28 Sharpe, “Informational Autonomy In The Boardroom” (2013) 9 University Of Illinois Law Review 1090

corporate leadership structure, acknowledging the benefits duality has upon corporate

performance due to unity of command. Such continued contention towards leadership structure,

and more specifically duality leads one to consider that duality is infact being used as a

scapegoat for criticism and blame by many in an attempt to explain corporate failures due to bad

governance and to try and restore investor and societal confidence. This is because vilifying

leadership structure provides a facile way of monitoring and measuring change, which is easily

susceptible to investor influence, which lessens potential harsh investor repercussions in future

occurrences of corporate failings. Although this has been effortless to get away with due to there

being no verifiable understanding of duality and its effects upon corporations at present,29 I argue

that this should no longer be permitted. All this is doing is shifting focus away from considering

and overcoming any crucial underlying issue of board process which may infact be attributable

for the prolonged debate, which is only acting to continually enrage the debate and increase the

risk of further corporate scandals hitting the headlines in the future due to going

unacknowledged. I believe moving away from the traditional approach to duality is a possibility,

because corporations are becoming increasingly aware of the need to not only practice what is

conventionally considered to be effective corporate governance, but to find alternative, un-

conventional corporate governance methods to remain true contenders in the competitive

corporate environment corporations are finding themselves in, in modern, contemporary markets.

1.4 My Thesis

I believe the time has come to bring finality to the debate of duality, which is what I aim to

achieve in this thesis. Others continue to try and explain the underlying theoretical premiss of

duality, ascertain whether or not duality enhances corporate performance or affects numerous

other variables, and others have even tried to accumulate all literature and research in the hope of

providing an overriding explanation of the practice of duality. With no undeniable and irrefutable

conclusion having been made as I shall discuss below, we are left with a vast amount of

dichotomous, contentious and conflicting information, which provides a basis for the debate to

progress through inertia indefinitely and remain an unanswered matter of corporate governance. I

7

29 Goodman, “Should Banks Keep Combined The Role Of CEO and Chairman?” (2013) Online: Financial Times <http://www.ft.com/cms/s/0/fb849930-b251-11e2-8540-00144feabdc0.html#axzz2grD4HgR0>

http://www.ft.com/cms/s/0/fb849930-b251-11e2-8540-00144feabdc0.html#axzz2grD4HgR0


however, do not propose to add to the debate-I propose to end it. I shall do this by

acknowledging the international practical reality of duality, considering the debates continuance,

deliberating literary depiction of the practice, explaining its theoretical underpinnings, and

reviewing the debates empirical state, but most significantly of all, reviewing the past twenty

years of the debate will enable me to conclude whether finality can be brought to the debate of

duality. Determining that this is infact a palpable possibility, I shall not only express why this is

practicable, but shall convey how this is so. Having achieved this aim, I shall then conclude by

describing the approach which I believe listed corporations should adopt in order to practically

end the debate and the required implementation.

The ability to conclude the debate and appropriately react will enable the rewards of effective

corporate governance to ensue; benefitting the corporation itself through the increased ability to

attract investors by enhancing investor confidence, increasing shareholder return, influencing

economic growth and societal welfare through minimizing the risk of corporate malpractice,

culminating in the enhancement of the international competitive corporate arena, benefitting

economical welfare. My thesis will be of great contribution to the literature because not only

does a major review of the practical and theoretical implications of duality currently lack, but so

does any determination of how the debate can progress and any potential prescription for

alternative resolution.

As will be discussed in greater detail throughout my thesis, I essentially advocate that the debate

of duality has progressed in an inconclusive manner, because focus has wrongly been placed on

an attempt to determine the optimal corporate leadership structure. From the outset of my thesis I

argue that this approach is inappropriate due to the inherently diverse nature of every corporate

entity and their operating environments, and thus finding the optimal leadership structure is

arguably an impossible task to attempt to conclude. My search of bringing finality to the debate

instead suggests taking a process orientated approach towards boards informational

deficiencies,30 in order to overcome ineffective CEO oversight and unnecessary CEO reliance so

board members can effectively fulfill their responsibilities. Both proponents and opponents of the

8

30 As Sharpe has insisted in “Informational Autonomy In The Boardroom” (2013) 9 University Of Illinois Law Review 1090

duality debate premiss their contentions upon this underlying information issue, and upon

acknowledging that the lack of boards informational autonomy is unable to be solved by mere

structural reform it is clear to see why the duality debate has persisted for so long. Responding to

the same, and also the issues surrounding the debate of duality, I take a process oriented

approach in which the board can become more effective monitors and more efficiently fulfill

their duties, by increasing their access to information gathering channels that are not controlled

by the CEO.31 In making a specific proposal which compliments modern day boards and

technological developments, I believe board oversight and decision making is enhanced, leading

to a more independent board of directors who are better equipped to detect managerial corruption

and incompetence through access to enhanced information, which will lessen the risk of

corporate disasters through enhanced leader oversight, and enable numerous practical benefits

which comes with effective corporate governance to ensue.

2 Duality In The International ArenaThe misalignment of regulation towards board leadership structure has caused inconsistencies

and disparities in international leadership practice-32 despite international standards having been

developed in an attempt to bring consistency to practice33 and despite the internationalization of

modern day corporate entities.34 While some jurisdictions legally mandate the separation of the

role of Chairman and CEO through the requirement of a unitary board structure as in Germany

and the Netherlands, other counties have a less restrictive legal and regulatory landscape and

allow corporations to determine and implement the leadership structure which they believe is

most appropriate depending on their particular circumstances. As the two tier board structure

institutionalizes the clear distinction and segregation between the supervisory and monitoring

function of the board and its managerial function, my thesis will progress by solely considering

9

31 Yang, Zhao, “CEO Duality And Firm Performance: Evidence From An Exogenous Shock To The Competitive Environment” (2013) Online: SSRN <http://ssrn.com/abstract=2177403>

32 Proxy Monitor, “Union Funds Pushing Companies to Separate Chairman and CEO Role” (2013) Online: <http://www.proxymonitor.org/forms/2013Finding1.aspx>


34 Tripathi, Shivnath, “Comparative Board Structures Under Corporate Governance Framework” (2013) Online: SSRN <http://ssrn.com/abstract=2282924>

http://ssrn.com/abstract=2177403


http://www.proxymonitor.org/forms/2013Finding1.aspx






the unitary board structure, the catalyst of the debate of duality, in order to review how regulation

and practice has developed in the past, to determine the appropriate action for the future.

2.1 The Regulation And Prevalence Of Duality

While many corporate officers have typically argued that unity of command is a necessary

survival strategy to allow major corporations to respond to the fast changing environments they

are trying to survive in, many in the corporate governance community argue that duality merely

allows officers to enjoy unchecked power which leads to nefarious ends, and a non-dual structure

is necessary to provide enhanced oversight to avoid such problems.35 Such a dichotomous debate

has developed through inertia for more than two decades, despite the landscape of board

leadership having changed during this time. Not only is greater emphasis now placed on

regulation with the aim of bringing greater transparency corporate practice, but investor

influence has increasingly played an inherently important role in dictating and influencing board

leadership structure which has had the effect of diminishing the practice of duality-with listed

corporations who have separated the positions having doubled in the last few years.36 I will now

consider aspects of international regulation in Canada, England and the U.S., in order to consider

how different jurisdictions have approached the matter of duality in their legal and cultural

business environments.

2.1.1 Canada

In the early 1990s, the Toronto Stock Exchange (TSX) commissioned the Dey Report37 which

investigated Canadian governance practices in the wake of several large corporate failures-

heralding a new era of increased attention to the responsibility of Canadian boards as stewards of

shareholder value.38 As a result of the report, the TSX adopted 14 non-mandatory best practices

and required Canadian listed corporations to annually disclose their practices, explaining any

10

35 Krause, ‘CEO-Board Separation: Promises And Pitfalls” (2013) Online: Conference Board Governance Center <http://tcbblogs.org/governance/2013/02/06/ceo-board-chair-separation-promises-and-pitfalls/>

36Krause, ‘CEO-Board Separation: Promises And Pitfalls” (2013) Online: Conference Board Governance Center <http://tcbblogs.org/governance/2013/02/06/ceo-board-chair-separation-promises-and-pitfalls/>

37 The Toronto Stock Exchange, “Where Were The Directors?” (1994) (The Dey Report)

38 The Institute Of Corporate Directors, “Five Years To The Dey” (1999) Report On Corporate Governance

http://tcbblogs.org/governance/2013/02/06/ceo-board-chair-separation-promises-and-pitfalls/




differences between their practice and such principles. Majorly influencing Canadian public

corporations leadership structure, the TSX guidelines require the appointment of a non-executive

Chair, or a lead director if duality is practiced, as emphasised in National Instrument 58-10139 in

reference to the guidelines set out in National Policy 58-201.40 The Canadian regulatory

approach thus appears intolerant to duality; seemingly rigid and prescriptive in requiring

corporations to either separate the roles of Chair and CEO, or introduce an additional officer to

the board as an increased oversight mechanism. This has led to duality becoming increasingly

uncommon in TSX listed corporations, with a majority of 55% of the TSX 60 having

independent board chairs.41 However, it is not only the regulatory approach in Canada which

attempts to influence corporate leadership practice, but as Canadian corporations have a large

percentage of controlling shareholders42 this has led to investor activism playing a significant

role in effecting structural change and influencing corporate leadership.43 Investors have

typically followed the Canadian Coalition for Good Governance’s influential approach towards

advocating against duality.44 Allowing the market to play a major role in determining the

adequacy of corporations chosen practice, with investors being the influential adjudicator in

assessing and prescribing governance practices and structures,45 has been considered a necessity

upon reflection of the unique regulatory system in Canada whereby regulation is carried out at a

provincial and territorial level making uniformity difficult to achieve, and also in acknowledging

the relatively low market capitalization of many listed Canadian corporations which arguably

make strict rules a significant and administrative burden.46

2.1.2 England

11

39 Ontario Securities Commission, “Disclosure Of Corporate Governance Practices” National Instrument 58-101

40 Ontario Securities Commission, “Corporate Governance Guidelines” National Policy 58-201

41 Deloitte, “Board Leadership: A Global Perspective” (2011) Center For Corporate Governance

42 Jewett, “Corporate Governance Regulation In Canada” Torys LLP


44 Canadian Coalition for Good Governance, “2013 Best Practices for Proxy Circular Disclosure” (2013)

45 Canadian Coalition for Good Governance, “2013 Best Practices for Proxy Circular Disclosure” (2013)

46 Jewett, “Corporate Governance Regulation In Canada” Torys LLP



Similarly, England’s leadership regulation also presumes that duality impairs good corporate

governance, which too has received investor endorsement. England is considered to have the

highest and most influential standards of corporate governance in the world.47 Following the

Cadbury Report48 the Corporate Governance Code was produced which has been instrumental in

effecting best boardroom practice in the listed sector. The Code remains the main regulatory tool,

with its principals having been adopted by the London Stock Exchange (LSE) as listing

requirements. The Code consists of principles which listed corporations are to follow on a

comply or explain basis; applying the main principles and reporting how they have done so, and

justifying and explaining the failure to follow a provision. This gives corporations greater

flexibility than in Canada to determine the leaders and officers of the board, especially when

considering generalized, non-detailed explanations for non-compliance have continuously

warranted departure from the Code in England. However the market also plays an influential role

in assessing the effectiveness of the practices as in Canada,49 again restricting corporations

flexibility in their determination of leadership practices.

The Code prescribes for there to be “no one individual having unfettered powers of decision”,50

insisting that “the roles of Chairman and CEO are not exercised by the same individual” and for

the division of responsibilities to be clearly established, set out in writing and agreed by the

board.51 Although the regulatory approach in the UK enables corporations to have a dual

structure without the pre-determined oversight mechanism of a lead director having to be

implemented as does the more invasive Canadian approach, the principles also appear to insist

that duality has the potential to blur lines of authority and impair good corporate governance.52

Such a regulatory insistence, along with the prestige of the code has generally led to impressive

12

47 The Financial Reporting Council, “Corporate Governance” Online: <http://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance.aspx>


49 The Financial Reporting Council, The UK Corporate Governance Code (2012)

50 The Financial Reporting Council, The UK Corporate Governance Code (2012) Principle A

51 The Financial Reporting Council, The UK Corporate Governance Code (2012) Provision A.2.1

52 Cullinan, “CEO/Chair Duality In The Sarbanes Oxley Era: Board Independence Versus Unity Of Commands” (2012) 16 Research on Professional Responsibility and Ethics in Accounting 167–183

http://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance.aspx




levels of compliance,53 but also formed the basis of the misguided belief that duality is bad

corporate practice, leading to investor pressure upon boards to separate the top leadership roles,54

which has now become common practice for nearly all major UK corporations.55 This is despite

non-duality having made no discernible difference to the quality of decision making at the

Northern Rock or the Royal Bank of Scotland, who had to be bailed out by the UK Government

despite the Parliamentary Commission on Banking Standards finding that the Chairman shared

the responsibility for “colossal failure” with the former CEOs, which I believe supports my

belief that there is an underlying contention which such structural focus overseeing.

2.1.3 The U.S.

Although in the U.S. there is a legal approach to the regulation of corporate governance, laying

down formal, detailed corporate governance provisions in the Sarbanes-Oxley Act (SOX),56 the

Act does not address CEO duality, despite the SOX being introduced in the aftermath of high-

profile corporate scandals, and despite duality having being blamed for being a significant

instigator.57 However the passage of SOX fostered a greater focus on governance issues beyond

its specific provisions-58 which resultantly effected the practice of duality.59 This is shown by

statistics whereby 80% of S&P 500 corporations practiced a dual leadership structure in 1992

compared to only 43% in 2007,60 and 92% of those practising duality currently having

established a lead or presiding director role.61

13




56 The Sarbanes-Oxley Act 2002



59 Cullinan, “CEO/Chair Duality In The Sarbanes Oxley Era: Board Independence Versus Unity Of Commands” (2012) 16 Research on Professional Responsibility and Ethics in Accounting 167–183

60 Risk Metrics Group: Standard & Poors 500 (2009)


Although duality still remains the most popular and prevalent leadership structure in the U.S.

when compared to other countries,62 with Wells Fargo having recently survived a shareholder

attempt to separate the positions,63 it is clear that the U.S. regulatory environment is gradually

increasing their support of non-duality. For example; U.S. corporations that received assistance

under the 2008 Troubled Asset Relief Program were required to separate the CEO and Chairman

titles.64 The Securities and Exchange Commission (SEC) recently ruled that boards in listed

corporations are required to disclose their leadership structure and explain the rationale and

appropriateness of their structure in their proxy statements,65 and detail the roles and

responsibilities of the CEO and/or Chairman,66 as adopted by the New York Stock Exchange

(NYSE). The potential liability attached to failing to file such information with the SEC, along

with the consequences of failing to abide by the NYSE rules makes compliance of inherent

importance.67 Current and former commissioners of the SEC have long spoken in favor of

separating the positions as a means of reducing the power of the CEO with Donaldson previously

stating separation is necessary to avoid concentrating "too much executive authority in one

individual",68 and Legislators have long been pushing for the separation of the positions in

Congress.69 This has led to growing criticism of the practice of duality from shareholder activists,

which has been the main influence impacting and alternating leadership structure in listed

corporations due to their preference towards role separation,70 seen in the increased shareholder

proposals demanding the split of the Chair and CEO positions faced by the likes of JPMorgan

14

62 Kim, “CEO Duality Leadership And Corporate Diversification Behavior”, (2008) Journal Of Business Research

63 Goodman, “Should Banks Keep Combined The Role Of CEO and Chairman?” (2013) Online: Financial Times <http://www.ft.com/cms/s/0/fb849930-b251-11e2-8540-00144feabdc0.html#axzz2grD4HgR0

64 Yang, Zhao, “CEO Duality And Firm Performance: Evidence From An Exogenous Shock To The Competitive Environment” (2013) Online: SSRN <http://ssrn.com/abstract=2177403>

65 Securities and Exchange Commission “Proxy Disclosure Enhancements” (2009)

66 Spencer Stuart, “Spencer Stuarts US Board Index” (2012) First Quarter 21

67 Directors And Boards, “The Great Divide” (2009) Board Leadership

68 Callaghan, “The Relationship Between CEO Duality And Subsequent Corporate Financial Performance” (2005)

69 The Shareholder Bill of Rights Act 2009 (Not enacted), The Shareholder Empowerment Act of 2009 (Not enacted)

70 Kakabadse, Barratt, “Chairman And CEO: That Sacred And Secret Relationship” (2006) 25(2) Journal of Management Development 150





Chase and Goldman Sachs Group Inc. On the state front, direct action has even been taken in

North Dakota in 2007 whereby the legislature added a corporate governance chapter to the state’s

business corporation statute with one of the provisions generally prohibiting duality, in order “to

strengthen corporate democracy and improve the performance of publicly traded corporations”.71

2.2 International Practice

I do generally believe that the current regulatory practice in the aforementioned jurisdictions is

effective; I do believe that each approach does enable greater transparency of process-although

some argue that shareholders can only garner very little added insight from annual proxy

documents which restricts investors monitoring abilities-72 while enabling corporations differing

extents of flexibility in determining best practice, which is superior to inflexible archaic legal

rules as such enables fast and efficient amendment in order to develop along with market need

and enables investor participation in determining the adequacy of governance standards imposed.

This is important as it enables the underlying premiss of the corporation to be endorsed, by

assisting with the alignment of the interests of those in which the corporation is meant to act, and

also enables corporations to function within their own business environments. Adoption of the

regulatory principles and prescriptions through stock exchange listing requirements also enables

an effective method of requiring implementation and compliance. However, one finds it difficult

to comprehend why there is an underlying international regulatory hostility towards duality,

which can also be seen in the OECD international non-binding standards of good practice,73 and

why investors are increasingly demanding the reconfiguration of board leadership structure to

adopt non-duality which they perceive to be an ideal governance structure.74 Demands have

typically come in the form of shareholder proposals to split the positions with 35 major

corporations having received shareholder proposals in favor of separating the positions in the

15



73 Frederick, “Enhancing the Role of the Boards of Directors of State-Owned Enterprises” (2011) OECD Corporate Governance Working Paper No. 2

74 Oslon, “Why The CEO-Chair Split Matters” (2013) Online: CNN Money <http://management.fortune.cnn.com/2013/03/12/ceo-chair-split/>

http://management.fortune.cnn.com/2013/03/12/ceo-chair-split/




2012 proxy season. Although they are non-binding on boards of directors, the shareholder

resolutions have been successful in achieving a split of the positions on an international level, as

at the Bank of America in 2009, and in 2011 such also attributed to eighteen S&P 500

corporations having adopted formal policies to separate the positions75 due to boards competing

to impress various industry groups who also support splitting the leadership positions-such

include the Council of Institutional Investors, the Millstein Center for Corporate Governance and

Performance and also the National Association of Corporate Directors. However, such investor

insistence towards splitting the Chair and CEO positions fails to account for the practical

considerations which are necessary to be made when demanding non-duality be practiced in all

listed corporations; such as whether separation will be temporary and whether corporations will

decide to provide shareholders with a voice in the matter. There also lacks regard for how

corporations will effect separation, whether this be by apprentice, demotion or departure

separations. Although demotion separations, in which the CEO remains chief executive, but an

independent director is appointed as the new Chairperson, are the least common form of

separation, it is typically what corporate governance activists are demanding-which shows how

independent monitoring is really what investors are believing is required on boards. Not only in

consideration of the issues raised below with regards to the independence of non-executive

directors, but when considering demotion separations have a sizable impact on future firm

performance in corporations who are performing well which can cause stock to go in to a

tailspin76 it leads one to question the appropriateness of the influence investors have upon

determining leadership structure, especially when they are acting upon outside knowledge,77 and

question why corporations are pacifying investor demand irrespective of firm performance.78

Investor influence means fluctuating practice is possible. which is not beneficial for corporate

strategic planning. For instance, despite the investor led mandate against duality, investor

insistence towards splitting the positions of Chair and CEO were rejected by 65% of voting

16

75 Spencer Stuart, “Spencer Stuarts US Board Index” (2012) First Quarter 21






shareholders this year.79 With corporate leadership structure in listed corporations arguably being

led by investor perception and personal opinion at different times, this makes structure ripe for

fluctuation-as evidenced at Walt Disney where the positions were separated in 2005, before dual

leadership was restored last year,80 and in Whole Foods Market in 2009, after years of easily

resisting shareholder demand, CEO Mackey finally admitted defeat and stepped down as Chair.

However other leaders do continue to vehemently resist investor pressure, maintaining that there

is no benefit gained in separating the positions,81 countering stakeholder demands releasing

statements claiming duality affords them indispensable unity of command and does not effect

oversight and independence-the position taken by the board of Chevron Corporation last year.82

However, I believe that such extraordinary influence against duality is making it progressively

harder for the majority of listed corporations to disclose the truth to stakeholders, if the truth is

that duality is actually the preferential leadership structure for their individual circumstances.83

Preserving the belief that the aim of the debate of duality is to enhance corporate governance

practice, it is thus difficult to conclude that this is currently being attained. The debate therefore

needs to be concluded in order to ensure the practice which is being demanded of listed

corporations on an international basis is the most appropriate and effective practice for the

individual corporation.

With it now being common practice that duality is automatically considered to be an

inappropriate leadership structure by investors84 despite the debate remaining inconclusive at

present, I argue that this must be due to a potential misunderstanding of the nature of duality and

misconceived assumptions about the practice.85 There is a reliance on the assumption that an

17

79 Palmeri, “Disney Shareholders Reject Call To Split Chairman-CEO Job” (2013) Online: Bloomberg News <http://www.bloomberg.com/news/2013-03-06/disney-shareholders-reject-call-to-split-chairman-ceo-job.html>

80 Oslon, “Why The CEO-Chair Split Matters” (2013) Online: CNN Money <http://management.fortune.cnn.com/2013/03/12/ceo-chair-split/>



83 The Harvard Law School Forum On Corporate Governance And Financial Regulation, “Seperation Of Chair And CEO Roles (2011) Online: Harvard <http://blogs.law.harvard.edu/corpgov/2011/09/01/separation-of-chair-and-ceo-roles/#6b||>



http://www.bloomberg.com/news/2013-03-06/disney-shareholders-reject-call-to-split-chairman-ceo-job.html








http://livepage.apple.com/




independent, non-executive Chair will create an independent board which will lead to better

detection of managerial corruption and incompetence86 through enhanced investor oversight,

which will increase the boards ability to access information about the CEO and management’s

performance without interference, resultantly enhancing corporate performance. This potential

misunderstanding has become the prevailing understanding of non-duality, even adopted by

corporations despite their natural opposition,87 in an attempt to restore investor trust and gain a

good reputation88 after several high profile cases where powerful dual CEOs were found to abuse

their tremendous power.89 This is generally in the knowledge that investors are now more

prepared than ever to pay a premium for what is considered good corporate governance, and in

an attempt to reduce the potential of influential investors such as Ontario Teachers and California

Public Employees Retirement from submitting shareholder proposals to urge non-duality, and to

lessen the risk of hostile takeovers due to perceived ineffective performance.90 This is despite

proponents of duality believing duality facilitates a better informed and more collegial decision

making process through greater co-operation between directors and executives-providing a more

effective information sharing system, enabling the board to independently monitor, oversee and

determine governance matters. In an attempt to settle the contention of leadership structure,

different international practices have been adopted by corporations on an international basis-

although they too have not been able to bring finality to the debate due to their structural

impositions. As required in Canada, other jurisdictions where corporations practice duality

attempt to curtail investor disgust by introducing a lead director to the board to enhance

oversight arguably destroyed by duality-as did Goldman Sachs.91 As a result of stakeholder

pressure surrounding duality having reached tipping point, this has caused the practice to grow

from non-existence to near-saturation in just over 10 years. Lead directors are usually

18




89 Moscu, “Does CEO Duality Really Affect Corporate Performance” (2013) 2 International Journal Of Academic Research In Economics And Management Services 1


91 Lipton “On The Leading Edge: The Lead Director” (1993) 71 Harvard Business Review 79-80

responsible for chairing executive sessions, serving as a liaison between executives and the board

and reviewing information sent to the board. However, a survey of the DOW 30 found that the

majority of corporations do not extend the powers of the lead director to aiding information flow

by approving information sent to the board, or leading the CEO’s evaluation-92 which are the

responsibilities I would consider necessary for the lead director to carry out in order to be an

effective oversight mechanism to overcome the problems raised by duality. Lead directors thus

seemingly take on a consultative rather than authoritative role and this has led to empirical

findings suggesting they do not to enhance corporate performance93 and are unable to

counterbalance a powerful dual officer.94 I thus believe corporations are using lead directors to

quell over investor anger of holding a dual leadership structure-merely a symbolic gesture to

signal independent oversight without creating a significant structural benefit, in an attempt to

make investors and society accepting of duality. With investors seemingly accepting duality in

the presence of a lead director, it further supports my argument that duality itself cannot be the

actual issue in the debate of duality, but there must be an underlying contention of board practice

which is infact leading to general misconceptions and misunderstandings associated with duality

which attribute the incorrect belief to many that duality is to blame for board problems.

International practice has also seen increased use of Chairman emeritus designations, with

twenty S&P 500 corporations being found to have such last year. This position is usually filled

by a former Chairman who in certain circumstances, if not an executive, may be given access to

important information one can then assess and advise the corporation on. Appointing a Chairman

emeritus may thus enable less reliance on CEO’s and increase the boards access to information to

allow enhanced CEO monitoring and lessen the contention towards duality.95 However, I submit

such benefits are minimal due to the designation being merely of prestigious effect, with

restricted responsibilities and abilities being determined by the board itself, which potentially

lack definition and therefore increase misunderstanding of officer responsibilities-adding to the

difficulties raised in the duality debate. This has been recognized on an international scale, and

19



94 Lipton “On The Leading Edge: The Lead Director” (1993) 71 Harvard Business Review 79-80


led to the office of corporate ombudsman having been specifically created to act as an

independent, inside information gatherer for the board, able to access wider sources of

information than typically available to the board, which supports one in believing it is

informational deficiency which is leading the debate of duality, due to mechanisms trying to

overcome duality focussing on improved monitoring and oversight through increased access to

information. Such enhanced knowledge being directly relayed to the board reduces their reliance

on the CEO and increases CEO oversight. However, the position itself faces similar complaints

as aimed at the CEO, such as the ombudsman having the power of tainting the information, and

tactically determining the information disclosed to the board. However I do believe such an

appointment evidences how corporations are aware of the boards reliance on CEO’s and their

informational disadvantage, and see it as a troubling underlying issue caught up in the debate of

duality.

I submit that the ease of oscillation of the most important corporate governance issue and one of

the most prodigious practical changes to make to a corporation through investor influence, is

unsatisfactory, because such action is based on inconclusive knowledge about the practice of

duality. I advocate that corporations, being the essential entities to society that they are, should

not develop in an uncertain world-with corporate health, strategic matters and international

competition and the increasing pressure to deliver performance all benefitting from greater

certainty and future stability. This therefore furthers the need to bring finality to the debate of

duality, to empower all players in the corporate arena with greater knowledge and information,

so any demands towards altering corporate leadership structure is with the view to benefit

corporate specific circumstances, rather than a general assumption being implemented on an

international basis due a misunderstandings and inertia surrounding the debate. With the

international practice seeing the implementation of additional officers on the board, based on the

belief that there is an informational deficit of the board, leading to ineffective CEO monitoring

and increased CEO reliance and, it is necessary to consider whether such concerns are evident in

the contentions surrounding the debate, to see whether here lies the potential of ending the

debate.

20

3 The Dichotomous DebateIn the words of Finkelstein and Hambrick duality remains “the most contentious issue in public

debates about boards of directors”,96 continuing to rage in academic and practitioner circles, with

finality failing to be found.97 There are many different facets which contribute to the debate on

duality and its inability to end; from the extensive disagreements surrounding the practicalities of

leadership structure, to the dichotomous theoretical approaches underpinning and influencing the

practice, to the inconclusive empirical attempts at justifying the dichotomous theory. It is

necessary to consider the same in order to understand how the debate of duality has developed in

light of the contradictory environment it has progressed in for over two decades, in order to

decipher if an end is in sight.

3.1 The Reality Of Duality

There are many diverse views, opinions and contentions surrounding the debate which have been

infuriated and often fabricated by international mass media, activist shareholders and defiant

directors, culminating in a twenty year dispute well-known for its inability to cease. However, in

my attempt to end the debate, I believe it is necessary to consider the key contentions to see if the

perceived underlying issue I have discovered of boards informational deficiency leading to CEO

reliance and ineffective monitoring, can be uncovered from practical reality, in order to consider

whether finality can somehow be encouraged in the midst of this perplexing and disconcerting

state of affairs.

3.1.1 Centralization Of Authority

The most apparent effect of duality is that the two top corporate positions are being held by one

commander as opposed to a separate CEO and non-executive Chair. Anderson and Anthony

(1986)98 have long maintained that the combined role provides a single focal point for corporate

leadership which projects a clear sense of direction in the corporation. Such confidence comes

21


97 Deloitte, “Swimming In Words-Surveying Narrative Reporting In Annual Reports” (2010)

98 Vlahu, “Corporate Governance of Banks” (2013) DNB Working Paper 386

from the conviction that dual CEO’s will use their intimate business knowledge to lead the

corporation more efficiently because they are more able to forcibly guide the corporation with

the appropriate strategy as they behold more power to be reactive to situations in the midst of the

dynamic, competitive and fast changing environments which listed corporations typically find

themselves in-due to there being no separate Chair to be countermanded by. This does in fact

gives investors and society alike greater confidence in the corporation which has been

consistently called for following the global financial crisis and corporate misdemeanors,99 due to

it being clear who is essentially in charge and responsible for the corporation,100 and the leaders

knowledgeability lessening the possibility of potential detriment to organizational operations.101

The unambiguous sole leader is thus attributed with enabling a multitude of practical benefits,

such as decreasing potential rivalry and conflict between two leaders-102 which sends a

reassuring message to shareholders and potential investors. However, Zelleke103 previously

found that rivalry and conflict between the officers is infact unrealistic, as Chairs are generally

respected by CEO’s and a productive relationship between management and the board arguably

comes as standard. Yet I submit that this does not support non-duality, because non-executive

Chairs are likely to have hampered informational and industry knowledge and competency

reluctance due to their independence, which alongside their general inability to become well

informed,104 may cause separate Chairs extreme difficulty in meaningfully shaping board

discussion. This leads to difficulties in establishing credibility and legitimacy with the other

directors105 and thus impairs their ability to obtain information necessary to effectively monitor

the CEO. I thus believe separate Chairs at present are merely acting as meeting leaders to walk

22


100 Vlahu, “Corporate Governance of Banks” (2013) DNB Working Paper 386


102 Wallalage, “Does CEO Duality Really Matter? Evidence From An Emerging Market” (2011) 8 Corporate Ownership And Control 4

103 Zelleke “A Comparative Study Of Boards In The United Kingdom And The United States” (2003) Online: Harvard <http://blogs.law.harvard.edu/corpgov/2011/09/01/separation-of-chair-and-ceo-roles/#6b>

104Zelleke “A Comparative Study Of Boards In The United Kingdom And The United States” (2003) Online: Harvard <http://blogs.law.harvard.edu/corpgov/2011/09/01/separation-of-chair-and-ceo-roles/#6b>

105Zelleke “A Comparative Study Of Boards In The United Kingdom And The United States” (2003) Online: Harvard <http://blogs.law.harvard.edu/corpgov/2011/09/01/separation-of-chair-and-ceo-roles/#6b>

http://blogs.law.harvard.edu/corpgov/2011/09/01/separation-of-chair-and-ceo-roles/#6b






the board through agenda rather than equip the board with the knowledge and information they

require to fulfill their duty to monitor management effectively. This leads the Chair to rely on the

CEO and provide information which is able to be distorted on two levels before reaching the

board; by the powerful CEO and the ineffectively placed Chair, leading to the board being unable

to effectively monitor the leaders, and make well informed decisions on corporate strategy.

3.1.2 Oversight

What is difficult to comprehend is how the same person responsible for the firm's performance is

also the person evaluating their efficiency,106 and how dual officers can properly execute their

fundamental governance role?107 With the practice of duality being said to enhance managerial

dominance because the officer will allegedly be more aligned with management than with

shareholders, and with joint responsibility arguably eroding corporate checks and balances,

oversight, and effective monitoring-dual officers are believed to enjoy unchecked powers which

could potentially be used toward nefarious ends;108 such as pursuing their own self interests to

set their own board agenda and influence board decisions by withholding and misusing the

information available. With the reliance boards and corporations place on the CEO for gathering,

assessing and acting upon information, and acting as the informer between management and the

board, their ability to abuse their powerful position as “dictator”109 and throw “checks and

balances to the wind”110 is inherently controversial. I believe such possibilities have led

shareholder activists to demand separation on an international basis because of the possible harsh

repercussions. I believe such potential repercussions of duality destroy the basic principle of the

corporate entity by undermining the board and the managements responsibilities to act in the

interests of the corporation, which reduces the ability to trust and rely on the leader and therefore

23




109Vo, “To Be Or Not To Be CEO And Board Chair” (2010) Paper 184, 76 Brooklyn Law Review 65


negatively effects how the corporation is perceived as a potential investment opportunity.111 This

leads me to question why the CEO is given such great power through unrestricted, informational

access when there is a board of directors who are there to monitor management and the

corporation, who would be greatly assisted if they were able to access the information the leaders

are acting and responding too, rather than being restricted to relying on the CEO, and rather than

implementing lead directors, Chairman emeritus and corporate ombudsman which I have argued

as being generally ineffective. I even believe the Chairmans appointment to monitor the CEO is

effected by ones independence and own bias and abilities, which is why I believe the debate of

duality rages despite the practical investor influenced mandate against the practice of duality,

because there is this underlying contention of board informational deficiency present in both

leadership structures which leads to the boards inability to effectively monitor the CEO. It would

therefore appear that enhancing the boards informational access and lessening their reliance on

the CEO to disclose the often tainted, biased information, would enable and enhanced oversight

in both leadership structures, and assist in aligning the CEO’s interests with that of the

shareholders.112 I believe enabling the board to react and respond to information they are able to

access themselves, rather than relying on what they are offered will enhance CEO oversight

which is an issue raised in both dual and non-dual leadership structures.

3.1.3 Independence

The arguments directed at the practice of duality make it easy to assert, and even easier to

assume that an independent non-executive Chair will facilitate board independence, by leading to

the better detection of managerial corruption and incompetence, enabling enhanced corporate

performance by lessening the risk of corporate disasters and being more able to effectively

oversee the CEO and ensure the necessary information is provided to the board to enable the

board to effectively and efficiently fulfill its functions. This reflects the concept behind

international regulation which influences corporations to avoid duality, which investors have

24







adopted the role of gate-keeper of.113 However, I argue that the insinuation that a non-executive

Chair enables independence is incorrect. This is because in reality, listed corporations typically

appoint Chairs who are former CEO’s, otherwise related to the corporations current management,

or have substantial equity in the firm. This has been evidenced in statistics, whereby Coles and

Hesterley (2000) found that only 16% of the U.S. corporations have a truly independent chair,

with the figure in the UK standing at only 25%114 despite non-duality being the prevalent

practice. Therefore, Chairs monitoring ability of the CEO is in practice undermined. However, I

submit that even if there was a truly independent Chairman, this too would be an ineffective

oversight mechanism of the CEO. This is because independent directors have less knowledge

and information about the corporation than their inside director counterparts, which results in

outside directors and resultantly their board, relying almost exclusively on the CEO for

information about the corporation which may be tainted, and thus effects their oversight of the

CEO.115 It thus appears that the contention against dual leadership structure is based on

misconceptions and incorrect assumptions, which is proving not to be providing the resolutions

they were hoped to, which leads one to question not only the informational power beholden to

the CEO inherent in both leadership structures, but leads one to question the structural emphasis

being advocated for in the debate of duality which is unable to overcome this problem, which

appears to be the common, underlying feature of the contentions raised in the duality debate.

3.1.4 Roles And Responsibilities

Concern is often focused on dual officers due to the inability to define the officers roles and

responsibilities. This is because one questions how an office can be effective in practice if it is

unable to be defined. It is typically assumed that a dual officer may find it difficult to recognize,

separate and undertake the responsibilities required of the overlapping roles, which will lead to

ineffective practice due to the dual officer gaining a further increase in power, which leads to the

25

113 Coles, Hesterly, “Examine the CEO And Chairman Duality Issue From The CEO Independence And Board Composition Perspective” (2000)


115 Owen, “Evolution Or Revolution? Changes In Britain's Boards Of Directors From 1960 To 2010” (2011) Spencer Stuart





boards total reliance upon the officer to ensure effective corporate governance and performance.

This leads to the reliance upon the CEO to disclosed the information necessary for the board to

be involved in the decision making process and fulfill their monitoring duties. In comparison,

bifurcating the roles may assist in defining and separating the roles and responsibilities of the

offices, enabling independence and autonomy between the board and management to be clear

which increases societal trust and investor confidence, enabling greater monitoring of CEO

practice and more ability for the board to be aware of informational sources through enhanced

oversight and monitoring of the CEO. This underlies regulation as previously discussed, which

requires disclosure of corporate leadership structure, the responsibilities assumed and how the

officer is to commit to such responsibilities. As mandated by a recent European Commission

green paper116 the functions and duties of the Chairperson and the CEO are to be clearly

divided,117 with the Higgs Report (2003)118 recommending that the responsibilities should be set

in writing and agreed by the board. However this does not make non-dual structures faultless, as

not only does this give room for corporations to take an institutional theory approach to

regulation, and for effects of non-compliance to entail, but Zelleke’s comparative study 119

actually found that there was no clear and defined job description for the separate Chair position

either, which causes separate CEOs and Chairs to be distracted by “struggles over power,

territory and accountability”,120 and may lead to a disengaged Chair who is fearful of speaking

up, or an uninterested CEO who does not undertake ones responsibilities seriously, which

subsequently effects the boards ability to fulfill their oversight role.

Such blurred lines of responsibility also has the potential hazard of frustrating the issue of CEO

succession. In some cases, a dual officer may be able to retire as CEO, but keep the office of

26

116 European Commission, “The EU Corporate Governance Framework” (2011) Green Paper

117Siladi, The Role Of Non-Executive Directors In Corporate Governance: An Evaluation (Faculty of Business and Enterprise, Swinburne University of Technology 2006)












Chairman. Although this ends the contentious dual position which appeases proponents of

duality somewhat, it nonetheless puts the new CEO in a difficult position. The Chairman will be

in a position to question all changes put in place by a new CEO in an attempt to exert ones power

and due to being unable to restrain oneself due to unknown or at least unclear lines of

responsibility. The board may take sides with the Chairman whom they trust and have a

relationship and history with and the conflict of responsibilities would make it difficult for the

new CEO to implement any changes due to power and influence likely remaining with the

former CEO. Such confusion will effect the boards ability to fulfill their responsibilities due to it

not being known who to place their reliance upon and who to monitor for what reasons. The

CEO may be less likely to communicate with the board and be less engaging-restricting the

boards informational access and ability to monitor the CEO who may be more inclined to begin

acting in their own self interest. Such problems are also enhanced when considering the

pressures and breadth of responsibility borne by each individual position of CEO and Chairman

in major, listed corporations, and with the likes of Krause and Semandeni (2013) persistently

arguing that the CEO itself has even grown beyond the capacity of a single person,121 and the

Cadbury Committee122 advocating that the position of CEO is a “full-time post itself and the

Chairman is a part-time position”.123 This may enable one to easily assert that it is actually

unreasonable to expect one person to ably fulfill both roles efficiently and effectively, with dual

CEO’s potentially restricted in their ability to gather, advise and consult on the information they

work with due to potential time restraints, thus increasing agency costs.124 Although when

considering corporate reality, one may argue that a dual officer does infact have the requisite

time to devote to board matters when considering the number of times boards meet is trending

downward, with the average board of the Fortune 1000 meeting in person eight times annually,

and with a scant 7% holding monthly meetings as compared to 25% twenty years earlier.125 I also

27






assert that corporations with non-dual leadership structures with non-executive Chairman who

work restricted hours, are arguably restricted in their ability to monitor the CEO sufficiently and

ensure effective corporate practices and strategic decision making, due to their lack of continual

information flow, and their lack of continued insight in to corporate activity, which is also a

problem which effects non-executive directors of the board-unlike the CEO who has access to

unrestricted information on demand away from the boardroom who does not have to play

catchup with developments in the corporation unlike the rest of the board. Although I maintain

that the officers themselves are best equipped to determine whether they are personally able to

fulfill their roles efficiently and carry out their duties effectively, I conclude that such practical

considerations equally effect both dual and non-dual leadership structures, effecting the abilities

of board members from fulfilling their roles due to the impacts of such considerations upon

monitoring processes, increased CEO reliance and the ability to access necessary information in

a proactive manner.

3.1.5 Personalities, Behaviors And Relationships

When considering what is required of a dual CEO/Chair, it is clear that such an officer has to

have legitimacy with the director group based on industry knowledge, attention to boardroom

process and inherent leadership skills-all of which do not necessarily come as a guarantee with a

separate Chairman-unless the non-executive Chair possesses a high degree of industry

knowledge through having had a long, successful career in the same industry.126 The separate

Chair thus has the added pressure of being required to develop a strong and trusting relationship

with the CEO, whether or not the officer is willing, in order for the board and stakeholders to be

content with the officers performance and trusting in their ability to attain the necessary

information and provide the requisite oversight. This leads me to believe that the effectiveness of

board leadership is inherently dependent on a series of relational and individual attributes and

28






behaviors, with research even attributing the behaviors and capabilities of officers as being the

most critical factor in affecting board performance.127

Whereas non-dual CEOs have been said to leave corporations at a younger age and work for

corporations for a shorter period, due to having a little sense of belonging-increasing the risk of

them acting in their own self interests-128 the responsibility which comes with holding a dual

office is typically considered to influence dual officers to work hard-motivated by an enhanced

sense of responsibility, greater management power and reputation which enhances corporate

practice-due to their increased sense of belonging with the corporation. However, this has led to

opponents of duality advocating that this leads to CEO entrenchment-129 not merely due to

pursuit of personal motives but because a dual leader and the board in general is believed to be

more inclined to lack the motivation and incentive to objectively evaluate and discipline in dual

structures, which increases the risk of entrenching the CEO/Chair in both positions. However I

contend that the markets remain highly reactive to potential entrenchment which lessens such a

risk. I also believe that the dual officers powerful position with regards to knowledge,

understanding, and greater access to information which is beneficial for corporate performance

and improving and maintaining the quality of board decision making upon disclosure to the

board. Such is enabled because duality facilitating a better informed and more collegial decision

making process through greater co-operation between board directors and corporate executives-

providing a more effective information sharing system, enabling the board to independently

monitor, oversee and determine governance matters. However opponents of duality maintain that

collegiality is only present until a point of challenge in board decision or corporate operation.

This is because in instances of dispute the board may distance themselves from the decision

making and monitoring process due to wanting to avoid conflict with such a powerful officer

who they believe is better positioned informationally to make important decisions-leading to

board disengagement due to the belief the officers contributions are not valued, important or of

any affect. A powerful dual leader may be of even greater effect upon managing directors on the

29


128 Wharton “The Cost of Entrenchment: Why CEOs Are Rarely Fired” (2011)

129 Martin, “Lone Insider Boards: Improved Monitoring Or A Recipe For Disaster?” (2008)





board, who may choose to disengage as they may not wish to be involved in monitoring and

evaluating the CEO/Chair due to loyalty to the officer, or due to the constant need or wish to

impress the CEO-apparently giving dual officers free reign to pursue their own self interests.130

Although a dual officer is arguably restricted from acting in ones self interest and prevented from

dominating the board, due to international regulations which focus upon board structure,

insisting upon a properly functioning, well appointed, diverse and multi-membered board which

has effective processes in place enabling effective monitoring and control, regardless of the

leadership structure in place, I assert that such regulatory and investor influence upon board

appointments and overall structure is ineffective. This is because structural requirements do not

acknowledge the likelihood that CEO duality begets self-interested behavior at shareholders

expense which almost entirely depends on who the dual officer is and their values, beliefs,

priorities, skill set and experiences, and whether they are of the personal character to pursue,

relentlessly and without exception, ones own self interest, regardless of the often harmful

consequences it might cause to others.131 This means that general assumptions towards board

structure, but more importantly duality and non-duality, are inappropriate, making the structural

pursuit to find the optimal leader unsuitable because it does not specifically take in to account

matters of individuality, which not only effect the CEO, but also Chairs whose characteristics can

lead to providing an effective monitoring role of the CEO.132 I am led to believe that there should

be a renewed interest and regulation towards board processes,133 as given the importance of

individual personalities, behaviors and competences of both board leaders and board office

holders in effecting efficacious corporate governance, it appears necessary for potential board

reforms to be developed with such attributes in mind.134 I believe attempts have been made to

30

130 Fox, Walker, “Evidence On The Corporate Governance Of New Zealand Listed Companies” (1995) 8(3) Otago Law Review 318













align individuality with commonality of thought in achieving optimal corporate practice; through

bonus based compensation systems not tied to stock market performance-attempting to motivate

officers to act in the long term interests of the corporation. However, the debate of duality has

continued, which I believe is due to overseeing the importance of focussing upon the underlying

issue of enhancing the information available to the board which I am increasingly noticing is the

necessary matter which requires focus in order to conclude the debate of duality.

3.1.6 Information Asymmetry

CEO duality enables an effective, well-informed corporate leader, more knowledgeable and able

to act and react to daily and diverse situations listed corporations face, due to the enhanced

access they posses to a vaster, more holistic variety of information in the corporation. However,

as Kim (2008) maintains, dual CEOs have access to, but can also withhold, tremendous

information, and can exert substantial influence on the board of directors by controlling the

information flows to the board, leading to information being transferred to the board

inefficiently.135 Such a structure therefore leads to increased transaction costs associated with

transmitting information to the board. However, as seen above, although non dual board

leadership structures arguably lessen the ability of the same due to the oversight Chairs provide,

their inherent independence with little if any industry knowledge, experience or business specific

wisdom, leads them to rely on the CEO, as do boards in dual leadership structures. The

informational problem is not only common in both structures in this regard, but is raised in all

previous arguments and aspects of the debate, and is the root of the debate itself. The matters

consistence reoccurrence in both leadership structures and throughout the issues raised in the

duality debate, and the inability of either side of the argument being able to overcome this

problem, not only encourages one to overcome the informational problem in order to end the

debate of duality, but leads one yet again to determine it is necessary to move away from

considerations of structural change, and is appropriate to take an encompassing process oriented

approach if one is to attempt to conclude matters. I advocate that a potential way in conquering

the same would be to reconsider the information channels available to the board. Not only would

31

135Kim, Buchanan, “CEO Duality, Leadership And Risk Taking Propensity” (2008) 24 The Journal Of Applied Business Research 1

focus upon information channels project a perception of corporate stability, but would act to

instill confidence in the corporations management through greater monitoring, would encourage

effective board decision making due to the boards increased knowledge and would also enable

organizational efficiency due to sharing information and being assessed by different individuals,

which itself would enhance board engagement.136 Such benefits overcome the problems raised in

the debate against due and non-dual structures, because it is the process influencing corporate

performance which requires alteration, not the structure itself. I shall consider the theoretical

approaches and empirical evidence below in order to see whether this process orientated

approach is an appropriate way to proceed in the search to end the debate of duality, and to

consider whether structural reform remains an appropriate consideration.

3.2 Theoretical Approaches

Upon consideration of the above perceived advantages and disadvantages of duality, it appears

that the debate goes further than merely considering the best structural approach to leadership in

listed corporations. The debate has apparently been conveyed through the need to seek board

informational autonomy upon the acknowledgement of the boards longstanding reliance on the

CEO to carry out their required responsibilities. It is clear that there is a lack of major focus on

this underlying issue which is present throughout the contentious arguments raised, which is why

the debate has progressed through inertia for so long-because consideration has merely focussed

upon structural reform-which has the inability to impact or influence this informational problem.

I shall now look to theoretical approaches in consideration of whether there is any underlying

basis for taking a process orientated approach to the debate and if this is necessary, and in

consideration of whether structural change is what remains required.

There remains a number of conflicting theories covering the debate. For over twenty years there

has been two main schools of theoretical thought on the controversial subject; one in favour of

duality and one skeptical of it which substantiates my belief that structural arguments and

approaches are whats preventing from the debate concluding, due to the dichotomy this causes.

32


However, alternative theories have developed in an attempt to garner support and bring an end to

the debate, which I believe are more appropriate in supporting my claims.

3:2:1 The Agency Theory

Agency theorists have long maintained that the positions of CEO and chairman should be

separated in the name of good corporate governance and in order to enhance corporate

performance.137 The agency theory is built upon the acknowledgement of the underlying

premiss of the corporate entity; that there are principals who delegate to agents who execute in

the principals best interests.138 Recognizing that this practice will inevitably cause a conflict of

interests, goals and risk preferences, it is acknowledged that different mechanisms are used in an

attempt to align the same and reduce agency costs. The major structural mechanism used in an

attempt to curtail managerial opportunism in publicly traded corporations is considered to be the

board of directors-the elected body entrusted with monitoring agents actions on behalf of the

principals. Agency theorists advocate that the practice of duality lessens the ability of the board

of directors to impartially and effectively review management on the shareholders behalf and

ensure such agents interests are aligned with the principals. The overriding concern is that duality

sacrifices the interests of the true owners of the corporation in favour of those running the

corporation,139 because corporate managers are believed to be value destroying, self acting,

opportunistic officers, motivated by their own personal interests and gains rather than the

shareholders,140 which, along with reduced oversight due to there being no separate Chair,

corporate performance is negatively effected.

The agency theory is the mainstream view which has been widely accepted by institutional

investors, academics and even regulatory and professional bodies as the driver for separating the

positions of CEO and Chair in listed corporations in order to improve accountability of the CEO

33


138 Jensen, Meckling, “Theory Of The Firm” (1976)



and independence of the board,141 having been influential on an international basis in requesting

boards to assign decision management to the CEO, and for decision control to be retained by a

separate Chairman in order for the board to maintain the authority to ratify and monitor the

decisions made by the CEO.142 This has resulted in non-duality being associated with an

effective and functional board of directors and effective corporate performance. However, the

considerations above lead me to believe that the agency approach has not been adopted in

practice because it is a true encapsulation and reflection of how duality works in practice, but

because the agency theory is the underlying premiss of the entire corporate entity. Thus it is

religiously followed, even in its depiction of duality-despite its expired, historic representations

which does not acknowledge or reflect corporate reality in the modern era. The agency theory

does offer a powerful theoretical perspective of corporate leadership structure, but it fails to

explain how self interest alone could guide diverse managerial decisions, and despite it having

greatly influenced international regulation and practice, it has been unable to bring finality to the

debate of duality.

3:2:2 The Stewardship Theory

Whereas the basic premiss of the agency theory revolves around agent managers considering

themselves as individuals without any other meaningful attachments, leading them to act in their

own self interest at the expense of shareholders, the stewardship theory instead places emphasis

on facilitative, empowering structures;143 with agent managers considered as beholding a sense

of loyalty to their corporations, leading them to strive for achievement, a good reputation and

recognized effective performance. Stewardship theorists argue that this leads agent managers to

seek profit maximization and results in the enhancement of shareholder interests and returns. The

stewardship theory thus supports CEO duality in the belief that such leadership adds to the

structural and psychological empowerment of the CEO, further encouraging and allowing the

34

141 Kroll, Wright, “CEO Duality, Board Monitoring, And Acquisition Performance: A Test Of Competing Theories” (2003) 20 Journal Of Business Strategies 2

142 Braun, Sharma, “Should The CEO Also Be Chair Of The Board? An Empirical Examination Of Family Controlled Public Firms” (2007) 20(2) Family Business Review 111-126


dual officer to better serve the corporation and its shareholders.144 The theory is based on the

principle of unity of command, which maintains that clear and unambiguous authority

concentrated in one person is essential for effective management. This is arguably enabled

because clear lines of authority are created which not only fulfills a regulatory purpose, signaling

to stakeholders who is accountable, but facilitates a clear and authoritative sense of strategic

decision making, which empowers management and boards of directors to respond effectively in

the corporate environment,145 where strong, directive, stable, and unconfused leadership is seen

as critical for organizational success.146

However I believe the stewardship theory is extremely narrow and simplistic. It focusses on

personal traits of corporate officers, and fails to take the numerous internal and external,

organizational and environmental factors, which drastically influence corporate leadership

practice, in to consideration. Yet, the stewardship theory is the approach which corporate officers

tend to favour, and is the theoretical approach which accurately explains their position towards

duality in practice, and explains the dichotomous state of the debate of duality as discussed

above. However, in practice, CEO’s and Chairman are battling the views of regulators, investors

and society who favour the agency theory, and resultantly corporate officers are restricted in

adopting a stewardship approach to corporate leadership structure in practice. This elucidates

how current practice has a restrictive theoretical underpinning and explains divergence of views

towards duality as a leadership structure and disparities in international practice.

It is clear that the theoretical approaches towards leadership structures are split, as are those who

support the different approaches in practice. Such rigidity towards favored theory and practice

has resulted in constant contention towards confirming the ideal structural practice, and I submit

that such entailing stubbornness has led to the debate persisting as opposed to abating, and has

restricted the debate from developing away for its structural insistence and being considered in a

35








more appropriate light. This is because of the dominant theoretical approaches which have

sparked and progressed the debate and influenced practice are themselves portraying a narrow,

simplistic perception of duality and do not reflect reality of corporate practice.

3:2:3 Alternative Theories

Alternative theories have been developed in an attempt to properly account for the true nature of

corporate leadership practice, in the hope of influencing and benefitting corporate governance

practice. Whilst the agency theory and the stewardship theory are the dominant paradigms which

have allowed scholars to develop substantial knowledge about board leadership and have

influenced international regulation, investor perception and corporate practice, after over twenty

years the theoretical approaches have not been able to conclude the debate of duality in listed

corporations. I argue that the presiding theories are no longer applicable in the modern,

international corporate environment, and are not the helpful and practically beneficial theoretical

underpinnings they aim to be. If one wants to bring finality to the contentious and dichotomous

debate of duality once and for all, one must move away from the longstanding, dominant theories

and their insistence on finding the optimal corporate leadership structure, and their extreme and

facile views of not only the corporate entity but of human nature, and acknowledge current, and

ever changing practice to account for the affects of duality in order to beneficially influence

practice in order to enhance corporate governance. Such discontent with the theoretical

underpinnings of the duality debate has been widely acknowledged, and resultantly acted upon in

the form of alternative theories having been developed in attempt to overcome the failings of the

dominant paradigms.147 Such include the resource-dependency theory which recognizes that

corporations possess critical resources-such as a board of directors with expertise, knowledge

and a necessary skill set-which gives them a competitive advantage. The theory accedes that

separate CEO and Chairs are more likely to enhance corporate performance because there are

two top-level leaders focussing on different areas of key success resources. However, again this

theory does not fully recognize corporate reality, and does not effectively account for matters

which influence corporate leaders decision, ability and desire to pursue key resources. The theory

merely focusses upon environmental dynamism and resource scarcity in consideration of the

36


effects of CEO duality.148 This theory does however provide a contingency perspective in

consideration of CEO duality, which has been adopted more holistically in the contingency

theory.

3:2:3:1 The Contingency Theory

The contingency theory is the alternative theory which has garnered the most support in the

literature and recent duality studies. The contingency theory considers many different internal

and external factors which could affect the choice of leadership typology, including resource

scarcity, environmental dynamism, board independence, culture, legacy, officer and board skill

set, personality traits and the life stage of the corporation. While contingency theorists may argue

that duality can be valuable in rapidly growing corporations in its early stages by providing a

strongly, clear figure of authority, or in turbulent and complex circumstances, duality may be

considered as negatively impacting what is considered effective corporate governance in

profitable corporations where there is a long standing dual CEO-Chair who may be pursuing

entrenchment.149 Contingency theorists argue that the agency model depicts dual officers as

“opportunistic, self-maximizing shirkers” which is as extreme a model as the stewardships

depiction of the CEO-Chair as an “altruistic, self-sacrificing steward of corporate assets”.150

Contingency theory differs by allowing for the complexity of both internal and external factors to

come in to play, acknowledging corporations differ in many regards, not merely in the attitudes

of the corporate officers and conceding that all of which have the ability to affect the ability of a

dual leadership and non-dual structure enhancing corporate performance in practice. The

contingency theory resultantly maintains the position that determining whether CEO duality is

beneficial and enhances corporate performance is dependent on many factors influencing and

affecting corporations diversely, and thus can not mandate non-duality as the only leadership

structure for corporations worldwide, 151 or require duality as a necessary requirement for listed

corporations. This therefore supports my preposition that focussing on corporate leadership

37





structure is only enraging the debate, due to the multitude of factors which can affect the

effectiveness of any leadership structure-especially in modern day listed corporations which

succumb to numerous influencing factors-and a refocus on processes will enable the debate to

progress, preferentially towards finality. However, although the contingency theory is arguably

the most encompassing theory which truly reflects and encapsulates the nature of the corporate

environment, filling gaps left by the dominant and traditional theories, it has also been unable to

bring finality to the debate. The theory has only been able to enrage the debate by asserting that

there is actually no preferential board leadership structure to mandate for all corporations, but

there are many factors which vary systematically across the environmental conditions of

corporate dynamism and complexity 152 which impact the effectiveness of the practice and impact

corporate performance differently in all individual corporations. Thus I am able to confirm that I

need to determine and propose a practical process to implement if I am to attempt to bring

finality to the matter.

3:2:4 The Theoretical Result

As previously discussed, it is clear that the agency theory has been adopted in corporate life, with

duality being restricted internationally by national regulation and by investor influence.

However, I advocate that the agency approach is not a true encapsulation and reflection of the

real underlying issues of duality and does not reflect corporate reality in the modern era. It too is

clear that the alternative theories which have developed in an attempt to explain duality and its

affects and influence practice, do not induce finality of the debate. All of such resultantly begs

the question of whether there actually is an end to the debate of duality in listed corporations,

especially when considering that the most accountable theoretical underpinning, which I believe

to be the alternative contingency theory, is unable to provide clear support for or against the

practice. It has become increasingly clear why the debate of duality continues to this present day

and remains an international debate, when considering the theoretical premiss of duality remains

uncertain, contentious and disputed, and is obvious why standard international practice has

become to disfavor duality when it is easy to continue through inertia by continuing to succumb

38


to the agency theory as the underlying premiss of the corporate entity, resulting in the actual

practice of duality dying out while the debate surrounding the same continues. However, the

contingency theory does gives some support to my belief, noting there is no structural answer to

the debate, which thus leads me to determine that a re-shift in ones focus on corporate leadership

structure should be made to process, in an attempt to overcome the underlying, informational

requests and concerns advanced by advocates on both sides of the debate and acknowledge and

overcome the numerous factors which surround the duality debate. Despite my inability to

confirm the optimal leadership structure, I will still be achieving my aim of bringing finality to

the debate in the interests of enhancing corporate performance. The efficacy of my move towards

finalizing the debate by taking a Process Orientated Approach (POA) rather than considering

what structure has earned the title of best leader, is considered an empirical question.153

3.3 Empirical Evidence And Research

The contrasting theoretical treatments used to weigh the duality debate are dichotomous and

clear cut. Empirical findings on whether we should be mandating against the practice or

supporting it, however, are not. There have been countless studies conducted, but I shall consider

those which I feel emphasize how empirical evidence has progressed through twenty years of

diversification and doubt, brining further contention and confusion to the duality debate.

The systematic search for a relationship between duality and firm performance began with the

Rechner and Dalton (1989, 1991) studies which form a cornerstone of the CEO duality literature,

as they sparked initial scholarly interest in the topic and set the foundation for all future CEO

duality research. The studies provided an early indication of the debates complexity, due to the

conflicting evidence the studies yielded.154 In the first study performance was measured by

stockholder return, which found no significant difference linked to CEO duality, whereas in the

study of 1991 which used accounting-based measures the results found that firms with a separate

board Chair outperformed firms with CEO duality. Donaldson and Davis (1991), the first

researchers to introduce the stewardship theory to the board leadership debate, went on to

39



challenge Rechner and Dalton’s findings due to criticism of their methodological approach. They

argued that duality increases performance effectiveness and found, in their multi-industry study

that those practising duality outperformed those with separated roles. After the conflicting

evidence the search for a explicit relationship between CEO duality and firm performance

became more nuanced. Scholars began questioning the logic that CEO duality must be

universally beneficial as advocated by the stewardship theory, or universally detrimental as

assumed by agency theorists. Boyd (1995) strongly asserted that “the critical question is under

what circumstances does the consolidation of power and decision making afforded by duality

outweigh the potential abuses described by the agency model?”. Boyd argued that CEO duality

would be beneficial under conditions of high environmental uncertainty because CEO duality

provides unity of command and speed of decision making that is necessary to manage

uncertainty, and such an environment is typical in larger, public, listed corporations, unlike

where there are conditions of low environmental uncertainty, in which the risk of CEO

opportunism increases, making non-duality, with its independent oversight, more beneficial.155

Boyd’s (1995) study generally supported these predictions, supporting a contingency model of

CEO duality’s performance effects, his findings lending support to the notion that each

corporation is unique, and circumstances may exist where duality is more advantageous for a

firm than harmful. Further complicating the theory around CEO duality, Baliga, Moyer, and Rao

(1996) found no overriding relationship between CEO duality and firm performance and

concluded any ill effects of duality would only be minimal, whereas Brickley, Coles, and Jarrell

(1997) contend, having recognised the underlying informational problem raised in the duality

debate, finding independent board Chairs increase agency costs through reducing the

effectiveness of information flow between the CEO and Chair, and resultantly the board.

Researchers such as Worrell, Nemec, and Davidson (1997, 1998, 2001) went on to consider

plurality of Chair, CEO and President positions of the corporation and was able to conclude that

while plural leaderships of large U.S. firms faced negativity, there is very little reaction to dual

leadership structures. Their 1998 study even found investors reacting negatively to the

consolidation of all three positions, but positively to the creation of a dual leadership structure.

After a decade of rigorous investigation, Dalton et al. (1998) attempted to bring finality to the

40


debate and determine the effects of duality on firm performance relationship once and for all

against an array of variables, but was only able to deduce statistically significant but practically

insignificant correlations which is reflective of the overall, inconclusive trend in CEO duality

research.

The plethora of conflicting, contradictory evidence and inconclusive empirical finding has

effectively ended the search for a direct and simple link between CEO duality and firm

performance. Scholars have instead began to consider, and continue to deliberate, more complex

interactions and classifications of CEO duality, considering other outcomes associated with CEO

duality that are more proximal than firm performance. This has enraged the debate of duality and

the multifarious measures of performance of studies, resulting in scholars now continuing to

point out that the issue is more complex than the simple distinction of combined or separate CEO

and Chair roles. This has led empirical study to be continually exasperated, contextualized, and

corporate specific.156 For example, Coles, McWilliams, and Sen (2001) found a positive

relationship between a combined Chair and CEO and a firm’s after-tax operating profit,157 with

Rhoades et al. (2001) finding that, “while there is a negative relationship between non-duality

and firm performance for firms in the anti-takeover studies, there is a positive relationship for

firms in the compensation studies”.158 Tuggle et al. (2010) studied the attention of the board

members on monitoring the management which was found to be negatively affected by the

duality,159 while Krause and Semadeni (2013) found CEO–Chair separation is only beneficial if

enacted as a solution to a corporate problem.

The research examples given encapsulate how the debate on CEO duality leadership is

characterized by considerable divergence of opinion and little consensus.160 Having given up in

this regard in finding the optimal leadership structure in terms of enhancing corporate

41






performance, research has developed by focussing on corporate specific organisational

characteristics and business environments161 in the hope they can find more restricted answers

and conclusions to the duality debate-moving away from the debate being a structural concern,

towards finality being seen as a processual, individualistic concern.

3.4 How To React To Twenty Years Of Conflict?

I submit that the disparate practical, theoretical and empirical evidence has been a significant

factor which has influenced regulators and mainly investors to take the international approach

they have-merely as a misguided attempt to be safeguarded from potential repercussions duality

is traditionally believed to cause, under the influence of the agency theory as the underlying

premiss of the corporation. I argue that the lack of a guarantee that separating the roles brings

any benefit, with “the only clear lesson from empirical studies being that there has been no long-

term trend or convergence on a split chair/CEO structure”,162 suggests that the structural focus

towards ending the debate has become redundant. Thus it seems appropriate if not necessary for

a processual approach to be taken to the debate in order to bring finality to it. This is because it

would provide an approach which would be able to recognize the underlying issues facing dual

and non-dual leadership structures being CEO reliance due to boards informational deficit

leading to ineffective CEO monitoring, and allow one to react appropriately to overcome such an

issue. Re-focussing ones efforts would allow the energy currently fueling the multifaceted debate

to focus on enhancing corporate governance practices163 rather than continuing to add to the

inconclusive and contradictory theoretical and empirical evidence of the debate failing to yield

any beneficial link between CEO duality and firm performance. If current practices remained

unchanged, noting empirical evidence has infact progressed beyond the traditional agency/

stewardship dichotomy in which one structure must reign supreme, and adopted a contingency

42


162 Sharpe, “Informational Autonomy In The Boardroom” (2013) 9 University Of Illinois Law Review 1090 (John Coates before Congress (2009))

163 Baliga, Moyer, Rao, “CEO Duality and Firm Performance: What’s the Fuss?” (1996) 17 Strategic Management 41-53





approach towards empirical study164 which has led the empirical debate to progress through

conditional, idiosyncratic and complex contingents, such as firm characteristics, industry,

environmental dynamism, turbulent circumstances of financial crisis and resource scarcity for

example,165 then there leaves a host of potential intervening variables to be explored.166 It is

therefore argued that the debate on duality is far from being concluded in any structurally

effective terms, due to such exasperations of multifarious measures of performance being

pursued in the study of the affects of duality. I assert that future empirical studies will only yield

evidence that is mixed and context specific, either continually enraging the debate to progress

through inertia, or finality brought to the debate only in context specific regards.167

Aiming to progress the debate therefore requires a re-focus of attention. Given that I agree with

the propositions of the contingency theory that performance implications of CEO duality are

contingent on an array of factors, and with the art of corporate governance requiring ways to be

found in which different corporate forms can function well,168 I argue that it is wrong to attempt

to mandate for or against duality which the debate of duality has attempted for over twenty years.

A generalized mandate against either structure is inappropriate because not only does the optimal

board leadership structure remain a contemporary and contentious issue which is unlikely to be

determined, but CEO duality is too important and too idiosyncratic for all corporations to adopt

the same structure under the misguided guise of what is deemed best practice due to differences

in individual organizational circumstances.169 Corporations should be free to determine the

leadership structure which is most appropriate to their needs, assessed as a strategic concern in

the context of each individual corporation and their internal and external needs,170 resultantly

43

164 Baliga, Moyer, Rao, “CEO Duality and Firm Performance: What’s the Fuss?” (1996) 17 Strategic Management 41-53


166 Hitt, Certo, Dalton, “The Fundamental Agency Problem And Its Mitigation: Independence, Equity And The Market For Corporate Control” (2007) 1 The Academy of Management 13

167 Wharton “The Cost of Entrenchment: Why CEOs Are Rarely Fired” (2011)

168 The Steering Committee, “Toward Effective Governance Of Financial Institutions” (2012) Group Of Thirty





choosing the leadership structure to enable the corporation itself to best deploy its governance

resources to gain and sustain a competitive advantage.171 This is opposed to investors and

regulators determining the leadership structure they think is most appropriate-based on twenty

years of inconclusive and undetermined literature, empirics, arguments and investor influence.

Thus, it is becoming increasingly necessary to implement a process to promote effective

corporate practice in diverse listed corporations in response to the inconclusive and conflicting

theory, empirics and practice, and in response to the misconceptions and misunderstanding which

have wrongly led the debate of duality to progress as a structural concern.172

4 An End To The Dichotomous DebateI have discussed what is known about CEO duality, which has enabled me to determine the

necessary steps to take to progress matters towards finality. I now aim to determine whether the

debate can be sufficiently concluded in light of the above discussions, and offer an agenda for

moving towards a resolution to overcome the theoretical and empirical ambiguities and the

disputes surrounding this ubiquitous phenomenon.173

4.1 Can The Debate Of Duality Be Concluded?

The debate of duality remains such a contentious matter, because mere structural change will not

resolve the underlying issue which is present in both dual and non-dual leadership structure. I

advocate that in order to conclude the debate-one must first accept that there is no optimal

leadership structure which can be generally mandated across all listed, international corporations.

I argue this is easy to assert and even easier to welcome considering not only are there many

individuals and thought leadership organizations who agree that the particular leadership

structure selected by a corporation is largely dependent on the individual corporation,174 with no

44







one structure appropriate or best able to serve all corporations effectively,175 supported by

empirics which are largely inconclusive in finding an optimal leadership structure. This has led

to explain practical situations where both dual and non-dual leaders having been vilified and

deemed responsible for corporate failings and scandals, and explains why there remains

continued contention in the debate of duality despite the current practical investor influenced

mandate against the practice.

Upon embracing a contingency based approach towards corporate leadership structure and

accepting that there is no general, optimal leadership structure, one can then move towards

taking a POA to overcome the issues attributable to the debate of corporate leadership structure

in listed corporations which have caused the prolonged debate to be continually infuriated. This

will enable finality to be brought to the debate once and for all, achieving the the aim of enabling

the holistic benefits of effective corporate leadership to follow, which has not been achieved by

the traditional structural approach. I shall now consider what such an approach would entail.

I believe that the debate of duality is fully able to be concluded, despite the prolonged,

contentious and inconclusive debate which has enraged as detailed above. I assert that if one

considered the actual underlying issue which is present in both leadership structures, which is

causing the contention and the debate to continue, and one solves it, finality will finally be

achieved. I believe the underlying issue which is causing the debate to continue is evident from

the arguments raised by either side of the debate and the assumptions they base such arguments

on; while those who are against the practice of duality rely on the assumption that a non-dual

leadership practice will provide a board Chair who is independent of management, creating an

independent board which is the critical variable in enhancing corporate performance by

increasing boards ability to access information about management’s performance without

interference from the CEO, duality supporters advocate that a single leader provides a unified

corporate voice and facilitates better internal communications which increases information flow

to the board. Thus, mandating against duality in order to increase substantive board

independence is pointless, as it fails to achieve this goal and is the reason why the debate

continues to rage despite the practical investor influenced mandate in international corporate

45


practice, leading one to believe a POA is how finality will most appropriately be brought to the

debate. The POA offers a new analytical paradigm that reorients focus away from board structure

and towards board decision making processes,176 which is more important to effective oversight

than changing the title of an individual board member. It has the ability to recognize the

underlying resistance against the practice of duality essentially being the concern of the boards

reliance on the CEO and lack of independent access to information which is covered in very few

codes, laws and regulations. While in non-dual leadership structures the independence of the

Chairman requires ones reliance on the CEO and the information they have access to, dual

leadership structures have no added monitoring entity of the CEO, despite ineffective lead

directors and other additions to the board, which increases the CEO’s power and ability to taint

information which the boards rely on the CEO to disclose. Therefore, ineffective monitorial

oversight in dual and non-dual leadership structures hinders the boards ability to undertake its

responsibilities and run the corporation effectively and efficiently, because they are reliant and

restricted in the information they are given and the quality of the information they receive. With

the CEO being the most expert and knowledgeable person about the corporations challenges and

strategic outlook due to unrestricted access to different information gathering channels on

demand, the CEO is thus also boards primary, and typically only information channel in both

dual and non-dual leadership structures. While the CEO has tremendous informational

advantages, the board in contrast, does not have access to alternative information gathering

channels to obtain the insider information necessary to fulfill board functions effectively. I

advocate that multiple information channels are critical to the board’s decision making process,

critical to the oversight of the leaders of the corporation and critical to ensure efficient, effective

and well informed decision making to benefit corporate performance and corporate governance,

and end the duality debate by overcoming the contentions which the debate raises which all stem

from this underlying problem.177 Although the CEO is the most expert and knowledgeable person

about the corporations challenges and strategic outlook, and may arguably be the best officer to

have assess to the necessary information to guide the corporation, the available information is

too unnecessarily restricted to this leader which raises numerous problems as discussed

46



previously. The information gap can and should be reduced through independent access to

various databases, strategy documents, department reports, and other forward looking

information the corporation compiles.178 Directors who access such information through different

channels will not place overconfident reliance on the authoritarian biases which lead to

unquestioned acceptance of the CEO’s recommendations and proposals. The board will be more

empowered to undertake informed and intelligent questioning to uncover the weaknesses of the

executive’s approach as well as providing directors with an informed way to bring their expertise

to bear on helping the corporation to succeed through the enhancement of the boards ability to

monitor and oversee the CEO. This attempt to reduce unnecessary CEO power will help to

overcome the underlying issue of informational autonomy which has attributed to the debate of

duality continuing for so long. I hope this accurate and reliable understanding of board practice

will influence policy makers and investors in to disregarding their current insistence on a

misguided focus on structure, towards acknowledging how the problem of board leadership

requires a POA to overcome contentions raised and enable improved corporate governance and

corporate performance.

However, one must not be so naive as to think that a twenty year debate can easily be answered

by offering the presumption that enhanced informational gathering channels will be without issue

itself. An implication of adopting a POA in which independent information gathering channels

are enhanced for the benefit of the board may be the criticism that this would place the board in a

position of managing, not monitoring and effectively undermine the CEO’s ability to run the

corporation. With the CEO being best placed to run the corporation from experience, the

knowledge one beholds and the skills one possess, I believe any such criticisms are easily

countered by acknowledging each member of every corporate board has their own purpose and

their own responsibilities, whether delineated in their articles of association, through proxy

disclosure or required through regulatory insistence as previously discussed. The CEO will

remain leader of management, and the board will not become managers because they are

appointed to the board with monitoring responsibilities. This contention can thus be easily

overcome by requiring enhanced clarification, description and disclosure of the responsibilities

47


of the executive and non-executive members of the board than required at present. Not only will

this enable each position to be monitored by shareholders to ensure their duties and

responsibilities are being carried out as prescribed, but will also bring clarification to corporate

process and board decision making, which will increase investor, and also societal confidence in

the corporation, overcoming further issues raised in the debate of duality. The board’s goal is to

develop a deeper understanding of the business and procure the information it needs to monitor

effectively, not to unduly undermine the ability of the CEO to lead, and there are many other

board process which can be adopted to overcome the potential issues faced by increased

information access for boards, such as requiring board members to inform the CEO about

meetings with lower-level managers, plant visits etc after they have taken place.179 One also

acknowledges that there are practical matters which could undermine taking a POA, when

considering the channels themselves will determine the types of information available to the

board and the amount of bias or taint associated with that information which consequently affects

the options and outcomes available to the board and the effectiveness of monitoring the leaders

of the corporation. This is present in the CEO reliant approach taken at present, which leaves

outside directors unsatisfied with the financial, operational and strategic information they receive

in comparison to their nonindependent counterparts,180 not only because of the quality of the

information provided itself, but because of the ability for such information to be tainted by

unintentional and intentional biases of CEOs, or even by corporate ombudsman's who are

intended to increase boards informational access. Even with the assumption that the board

receives information that is unbiased, complete, and accurate, there is also the issue of whether

the board themselves have the time or requisite skill necessary to properly assimilate the

information-as the boards usually receive their information at the last minute, with it often being

poorly organized and voluminous,181 especially considering non-executive board directors are

part time employees who may not have the time to digest the increased information they are

given. This results in any POA adopted being of little substantive difference, resulting in it being

just another compliance requirement that never rises above the level of a check-the-box

48




obligation. However, I advocate that this will not actually be the effect of implementing a POA.

Corporations will be incentivized to take the POA, because the approach is designed to fit the

endogenous nature of corporate governance. Unlike the structural approach at present, the POA

will not only require independent information gathering channels to be put in place, but will

facilitate further consideration as to how well designed and robust the implementations are in

helping specific boards themselves achieve true independence and benefit performance, and how

corporations themselves can avoid corporate specific problems raised in new approaches

adopted. This corporate specific approach is beneficial, and compliments the current approach

adopted in contingency theory and also empirical study,182 unlike the current structural approach

to change which assumes corporations are all the same and act the same in their different

business and regulatory environments.

Although I acknowledge that there will be potential criticisms of taking a POA towards ending

the debate of duality, I believe that the criticisms can easily be overcome and the need to end the

dichotomous debate of duality after over twenty years outweighs the same. I assert that until

boards have meaningful informational autonomy, they will never function as consensus-based

decision makers or as the effective monitors that policy makers and the public desire, and

shareholders and corporate health requires.183 Despite the critical importance of the flow of

information in the work of a board, information has been surprisingly underemphasized in the

scholarly and policy debates on board reform, as has the recognition of such being the underlying

issue of the duality debate, as has its potential to actually bring finality to the debate. I seek to

change this, by seeking to improve the quality of board decision making through encouraging

and increasing greater information flow to the board, which facilitates effective consensus-based

decision making, lessens CEO dependance and enhances leadership monitoring, resulting in the

benefits of effective corporate governance flowing.184 I show now consider ta POA to be adopted

in order to end the debate, before considering its implementation.

49

182 Goldberg, Lee, “Principles Of Corporate Governance” (2010) 17 Business Roundtable 67, 3





4.2 How Can Finality Be Brought To The Debate?

Placing an outside director in the position of board chairperson does not solve the informational

deficiencies endemic to most boards, and the CEO holding the Chairman position creates

numerous obstacles which lessen the information the board receives-both leadership structures

placing great reliance on the CEO to gather information, and to run the corporation efficiently

and effectively. With both sides of the debate wrongly clinging to structural mechanisms as a

means to achieving greater board autonomy, the focus needs to be placed on a POA and attaining

better information processes, which are infact the solution. I thus advocate that corporate

governance should focus on a POA and allow corporations to dictate the best structure for their

individual board. There are numerous different approaches which could be taken by the board of

directors, however I shall consider the approach which I believe is the most appropriate action to

take to reflect modern day corporate society and practice, and the approach I believe best brings

finality to the debate by overcoming the underlying contentions and issues surrounding the

debate-being the adoption of board information portals. Board portals may not be a revolutionary

proposal for boards, but they are a necessary, and undermined evolutionary development in

improving communication and efficiency, and the way finality is brought to the debate of

duality,185 by opening the lines of communication and providing clear, updated, and unbiased

information for directors outside of the boardroom,186 aiding monitoring and assessment which is

necessary for the boards to fulfill their required functions.

Modern public corporations are twenty four hour entities which require twenty four hour

oversight, and I advocate-require constant electronic informational access. Board work,

oversight, decision making and strategic planning does not stop when quarterly meetings end.

Directors are expected to continue conversations beyond meetings, but without a portal, this is

not always possible, and is not always convenient for hyper-sensitive information to be

communicated in real-time, distributed with zero-days notice. Improving productivity is a must

and technology I believe, holds the key. The risks faced by corporations today necessitates

improved board communication techniques to address the quality, quantity and speed of board

50

185 Cormican, “Board Portals-Evolution In Board Communication” (2011) Applied Corporate Governance, Keeping Good Companies

186 Recorr, “The Dangers Of Asymmetric And Insufficient Information Flow To Boards” (2013) Enlight Research

material presentation. Successful corporations must have the ability to be quick to take advantage

of opportunities that come their way-and disseminating the pertinent details fast through a portal

can deliver the first mover advantage that can make all the difference.187 Given the

unpredictability of external events such as M&A activity, market swings and natural and man-

made disasters, it should be expected that circumstances at some stage will dictate the need to

schedule an online meeting within 24 hours notice and in that short timeframe make all relevant

documentation available.188 Board portals will allow this to happen, as such confronts the issue

of mobility of board members. Only a portal can achieve such modern day necessity. I believe

listed corporations should all adopt board portals which allow them to establish secure online

environments in which board members can access corporate documents, communicate, make

notes and collaborate. Implementing a portal system will provide an information channel which

enables board members to overcome the obstacles they currently face in accessing and properly

analyzing information, it will enhance board knowledge and understanding-improving their

ability to act, monitor and make effective decisions to guide the corporation to continual

corporate success. With all of the necessary information in one central location, portals can cut

down on travel, eliminate mailing and delivery hassles, increase communication among

members, and make board materials easier to read, and allow content to be uploaded and edited

in a fraction of the time it does to prepare and disclose hard copy documentation.189 I believe that

all of the above incentivizes and engages part time non-executive directors, and executive

directors, and enables the board to stay connected more easily, and also assists corporations in

abiding by regulations calling for greater disclosure and better record retention. The adoption of

a portal thus culminates in corporations being able to demonstrate that they are a well governed,

well led, effective board-preventing the debate of duality from unnecessarily continuing. The

direct access to information databases will remove the selection and reporting biases that come

from having an intermediary like the CEO, a Chairman or even a corporate ombudsman, and will

provide a check on the CEO’s intentions, subsequently enabling portals to increase the boards

51




monitoring and advisory functions by being armed with more necessary, accurate information,190

and equipping the board with the ability to monitor daily corporate and market activities. This

can be done by enabling many officers to upload necessary information to the portal, enabling

greater collegiality of decision making, or even engaging an independent source to provide

unbiased, non-proprietary information to be disclosed on the portal. Although portals are

currently restricted to one-way distribution of documents, I believe that there should be the

ability for such a two-way channel that supports the sharing of notes and other communications

between board members themselves. Enhancing the current ability and the use of portals will be

of great importance and benefit to the boards of directors. Although non-executive directors are

part time officers who typically devote an average of 4.3 hours per week to their positions,191

with such information being streamlined in this efficient and convenient manner, and benefitting

from the greater accessibility of a portal, they will be able to keep up to date with key

developments more easily in a more timely and credible manner, while not being subject to the

bias’s which arise through reliance upon the CEO or another for their information, improving the

boards ability to advise and provide oversight. Such a POA compliments modern day corporate

boards who are becoming more and more independent, with boards striving to get different

perspectives, which only magnifies the problems associated with asymmetric information. In

order to gain valuable, diverse perspectives, its appears obvious that a board should be given

more than just the one, traditional internally controlled source of information about the

corporation and industry. Board portals are able to gather-in one online highly secure location-all

the practical information and news of the board and business, meeting details, all documents and

board packs, note taking functions and collaborative tools, and provides the ability for vast,

unrestricted amounts of important information to be disclosed to the board in a convenient,

timely and cost effective manner. While board portals which are typically been used by very few

firms, only use such systems to provide information overload to the board in the run up to

meetings such as Nasdaq who implemented Directors Desk portal software, along with 66% of

public corporations192 merely using portals as an alternative method for providing paper

52


191 Strauss, “Company Directors See Pay Skyrocket” (2011) Online: USA Today <http://archive.is/hbDp9>

192 Deloitte Board Practices Report “2012 Board Practices Report: Providing Insight Into The Shape Of Things To Come” (2012) Society Of Corporate Secretaries And Governance Professionals

http://archive.is/hbDp9


information packs prior to board meetings,193 I believe the use of portals should be increased.

Improving the volume, quality, and timeliness of information flow than at present, enabling

board portals to provide a source of extensive, continually updated important information in

order to make well informed, effective decisions and enhance the monitoring abilities of the

CEO’s actions more effectively, with boards requiring independent access to every part of the

organizations they oversee.194 Current practice sees management inherently hesitant to provide

boards with such access to information, and rarely provide their boards with unfiltered, although

often publicly available, non-proprietary information, worsening asymmetry and increasing the

potential of the board being restrained, limiting their knowledge and awareness. I believe after

twenty years of the duality debate the time has come to end it, and thus believe it is necessary for

all listed corporations on an international scale to adopt this technological approach on this

wider, effectively developed basis as an information channel. Advancing down this technological

route is important, in order to improve efficiency and organization of meetings, processes and

performance, and to provide an efficient platform for easy communication and information

exchange to enable effective decision making and greater monitoring and assessment abilities. As

the role of boards shift along with rising independence, asymmetry has greater potential to

inhibit effective decision making than ever before. In order to combat this problem, directors and

management both must take these active steps of granting boards access to unfiltered information

from different perspectives; directors must be diligent in asking questions and communicating

with one another to fill in gaps in information, and management must make a concerted effort to

provide transparent, concise information. No matter what the industry or size of the company,

board portals offer an efficient way of facilitating board process. I argue that adopting this

specific POA brings finality to the debate by overcoming the contentions raised in the debate:

informational asymmetries are lessened by greater access to information which also assists in

overcoming the detriments associated with independent non-executive Chairs, improved board

decision making is enabled through the provision of enhanced knowledge in a more timely

manner, which also drastically improves the boards ability to monitor the CEO, and the ability of

53

193 The Corporate Board ‘Leading a Board at the Speed of Instant’ (2011)

194 Ruck, “Improving Corporate Governance: The Case For Board Portals” (2009) Sarbanes Oxley Compliance Journal

one officers personality, behavior and relationships to cause detriment to corporate practice is

lessened due to more collegial decision making. The contention underlying leadership structure

is thus removed and corporate practice is enhanced.195 However, in order to move from a

structural approach to a POA in international practice, it is necessary to consider the appropriate

implementation which is required to make my proposals possible.

4.3 Implementing The Approach

There are numerous ways in which boards can increase their information flow to the board of

directors, however I have focussed upon the POA of using portals which I feel is most

appropriate in the modern age of listed, internationally present corporations. I believe board

portals have the greatest ability of being implemented, not only because corporations have

already been influenced to an extent by adopting a similar approach in practice, but because I

feel it is the most suitable approach to achieve my aims and overcome the issues having

surrounded the duality debate.

Some corporations have adopted board portal approaches through choice, however I propose to

take a different approach to the implementation of the same. I shall not be requiring legal change,

or suggest greater regulation of the corporation in order to bring about increased access to

information as I do not believe it is appropriate to require corporations to beholden to legal rules

when it is they who are best placed to determine what is best for their being. I believe such only

restrict corporations from fulfilling their individual potential and restrict effective corporate

governance from being established, because it is taking decision making abilities away from

those best able to determine the necessary processes to guide the corporation to success,

removing great flexibility which corporations need in order to continually adapt and react to their

business market and investor environments, and creating unnecessary costs. However, I do

believe corporations should be regulated to an extent in implementing the POA, with their

corporate governance practices not solely left for investors to alter as they so wish, due to the

holistic importance of corporations, and the corporations potential effects upon investors, society

54

195 Perkins, “Board Portals: No Assembly Required” (2008) Online: Bloomberg <http://www.businessweek.com/stories/2008-04-22/board-portals-no-assembly-requiredbusinessweek-business-news-stock-market-and-financial-advice>

http://www.businessweek.com/stories/2008-04-22/board-portals-no-assembly-requiredbusinessweek-business-news-stock-market-and-financial-advice






and economical health.196 However, acknowledging the importance investors have in monitoring

corporations, such as the flexibility to adapt to investor demand, and the ability to assess and

monitor corporate performance, I thus believe a middle-ground approach should be taken, where

investors can still indirectly influence practice. I thus believe an addition to other regulatory

channels is required, such as the corporate governance codes as created in Canada and England,

and the stock exchange listing requirements. Listed corporations will comply with the POA not

only to gain the holistic and important advantages of listing and avoid the pre-existing sanctions,

but because they are now more likely than ever to implement effective corporate governance

processes to impress investors they continually aim to please.197 I believe that an internationally

co-ordinated POA is required, recommending implementation from all stock exchanges or/and

corporate governance codes-influenced by the OECD principles of corporate governance who

too would need to be persuaded by the same. I believe differential international approaches are

inappropriate when considering the corporation itself is an international entity with international

influence and possibly an international listing, and I thus argue that commonality would be

welcomed and praised to overcome this debate. Due to the non-restrictive nature of a

recommendation, international implementation will enable each jurisdiction to adopt and

implement the recommendation in consideration of their own markets, their own legal, social and

cultural issues and state of economic development.198 Such can be respected because I am only

advocating for basic implementation of providing an enhanced information channel-as opposed

to requesting a necessary, specifically detailed approach to be taken. I believe the approach to be

taken should be a matter for the board and the corporation to decide, determining what is best for

them, and what will be most likely to increase the information flow to the board, and to

collegially decide what the board requires to be able to make effective decisions and monitor

their leaders efficiently. This will prevent corporations from taking an institutional/box-ticking

approach to corporate governance-only disclosing the basic information required, but requiring

55


197 Donaldson, “Making A Smooth Transition To Board Portals” (2012) Online: Corporate Secretary <http://www.corporatesecretary.com/articles/technology-social-media/12295/making-smooth-transition-board-portals/>


http://www.corporatesecretary.com/articles/technology-social-media/12295/making-smooth-transition-board-portals/




collegial discussions to determine what is necessary and most effective for the specific

corporation. In order for investors to gain confidence in such a process, I believe the basis of the

requirement of adopting an information channel to overcome issues of informational accuracy

requires disclosure-disclosing the approach adopted, the method and reasons for doing so, and

the information which the board will be given access too to enable effective and well informed

decision making for the board-which investors can then assess, monitor and influence. Increasing

the information available in this way has the ability to enhance the corporations ability to be

confident in facing investors with the leadership structure they think is suitable-whether that be a

dual or non-dual structure, knowing the underlying issue which causes great contention and is

the reason why the debate of duality enrages, has been appropriately approached, and the

information provided to investors will give them confidence in the corporation and its ability to

effectively govern. I believe such an implementation is appropriate because international practice

largely rests on disclosure based approaches for corporate governance matters which are

arguably effective. Boards would retain the flexibility to determine the technical matters which

come with implementing an information portal, enabling them to adapt with new developments,

for instance; ensuring the board are technically literate and trained appropriately, ensuring the

implementation process is not burdensome to the corporations internal processes and ensuring

internal policies and procedures are updated.

Although corporations will be free to determine the most appropriate information channel for

their corporation-but required to implement it-I personally believe a board information portal is

the best implementation in modern day listed, internally present corporations, as emphasised

above. Although arguments may be raised with regards to costs of software, and the security of

software-not only has there been improvements in security, which in fact makes a technical

information sharing system more preferable than paper based systems-but costs can be kept to a

minimum in modern day technology. Whereas a few years ago, it might have been a struggle to

get board members to consider using board portals,199 portal technology has evolved to meet the

needs of diverse and ever developing boards in a variety of arenas, and corporations have

resultantly evolved in terms of their willingness to embrace board portals-not only because of the

56

199 Donaldson, “Making A Smooth Transition To Board Portals” (2012) Online: Corporate Secretary <http://www.corporatesecretary.com/articles/technology-social-media/12295/making-smooth-transition-board-portals/>





convenience they provide but also because they offer security, provide cost, labor and time

savings, and are a greener alternative to paper-based books-interesting corporations who are

increasingly aiming to be socially responsible.

I also believe it is necessary for corporations to consider evaluative methods in the POA they

adopt in order to ensure they can deal with future developments efficiently and effectively, in the

recognition that board governance processes are long term challenges in which the journey of

improvement never ends. Evaluation processes have become common in the boardroom, with

94% of S&P 500 companies regularly conducting governance evaluations.200 Directors,

executives and leaders of listed corporations are thus aware that the continued success of their

corporation depends on finding the right corporate governance practices that best meet their

corporations needs and the expectations of their investors. It gives investors the confidence in the

value proposition of their corporation over the long haul which will attract investors who are

prepared to pay a premium for the shares of corporations with the right corporate governance.

With the approach to end the debate of duality arguably defined, it is important to ensure there is

a process in place for continual evaluation to ensure the approach adopted by corporations

remains relevant, appropriate, correctly implemented and effective in continuing to enhance

corporate governance,201 given the ever changing economic and political environments, risks

posed and market environments. I believe appropriate methods of appraisal would involve

considering the views of outsiders of the boards, whether this be involving shareholders in

annual general meetings requesting a vote on practices, or engaging external consultants as

corporations are now more commonly relying upon.202

5 ConclusionsWith the lack of an evident relationship between board leadership structure and firm performance

in empirics, in theory and in practice, the debate of duality exhibits a “level of consistency

57

200 PwC, “Annual Corporate Directors Study” (2011)


202 Ungureanu, “Board Evaluation-A Window Into The Boardroom” (2013) Online: The Harvard Lawschool Forum On Corporate Governance <http://blogs.law.harvard.edu/corpgov/2013/05/31/board-evaluation-a-window-into-the-boardroom/>

http://blogs.law.harvard.edu/corpgov/2013/05/31/board-evaluation-a-window-into-the-boardroom/






unusual in any literature”203 and has continued to rage through inertia for over twenty years.

Having considered and questioned the same, it would be easy to assert that the debate of duality

can only progress in this manner. However, with the aim of achieving optimal corporate

governance practice I have proceeded to find a way to end the debate of duality to benefit current

corporate practice in listed corporations on an international scale.

The discussions and deliberations present in my thesis have allowed me to conclude that the

conventional structural approach towards the debate of duality has led to the inability of the

debate of duality ending for over twenty years, which is supported by inconclusive theory and

empirics. Despite such findings the debate has continued to rage and has remained a highly

contentious, international issue. Having considered the progression of the literature and empirical

research studies, I have advocated that progressing with the structural approach towards the

debate through inertia makes an ultimate determination and conclusion of the debate arguably

impossible due to dichotomy. However, in acknowledgement of the holistic importance and

necessity of effective corporate governance practices being established and practiced in

international corporations I have pursued with the agenda of ending the debate. Upon

consideration of the contentious issues surrounding the practice, I was able to attribute a

common, underlying cause which is encompassed in all arguments raised in the debate-sought by

proponents and opponents of duality alike, which has been acting as the motivating factor

causing continued contention which has constantly enraged the debate-found to be the boards

lack of informational autonomy, leading to CEO reliance which effects the boards ability to

monitor the CEO and guide the corporation which the board is assembled to do for the sake of

effective corporate governance and corporate performance. Acknowledging that such issues can

not be appropriately solved by focussing on board structure and structural reform, this has

enabled me to advocate for a different approach to be taken to induce finality, the POA. I have

advocated that the POA of adopting board portals is the reform which can end the duality debate.

The implementation of a portal in a more enhanced, continual and reciprocal manner than as

currently implemented in some corporations at present has the ability to adapt to corporate

specific needs and situations, but more importantly enables the underlying contention behind the

58


debate of duality and the issues surrounding the discourse to be overcome which ultimately ends

the debate. However, the ability of the debate of duality to end, and benefits of effective

governance to flow, now rests in the hands of regulators and stock exchanges to implement such

a disclosure based requirement as advocated, with investors to demand this specific, modern and

technical POA, and with corporations to ensure effective execution and existence of the

approach-which continual self assessment and evaluation of the system will help to enable.

59

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